Prospectus Supplement No. 3
(to Prospectus dated October 22, 2018)
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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-227786
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OFFERING
PROSPECTUS
3,963,241
Shares Issuable upon the Exercise of Warrants
This prospectus supplement updates and supplements the prospectus
dated October 22, 2018 (the “Prospectus”), which forms a part of our Registration Statement on Form S-1 (Registration
No. 333-227786) (the “Registration Statement”). This prospectus supplement is being filed to update and supplement
the information in the Prospectus, with the information contained in our annual report on Form 10-K filed with the Securities and
Exchange Commission (the “Commission”) on March 29, 2018 (the “Annual Report”). Accordingly, we have attached
the Annual Report, without exhibits, to this prospectus supplement.
This prospectus supplement relates to the offer and sale of
3,963,241 shares of our common stock that are issuable upon the exercise of outstanding warrants, including 102,947 shares issuable
upon exercise of an outstanding warrant issued to Maxim Group LLC (“Maxim”), the placement agent in the private offering
in which the remaining shares being registered by the Registration Statement were issued.
This prospectus supplement should be read in conjunction with
the Prospectus, which is to be delivered with this prospectus supplement. This prospectus supplement updates and supplements the
information in the Prospectus. If there is any inconsistency between the information in the Prospectus and this prospectus supplement,
you should rely on the information in this prospectus supplement.
Our common stock is quoted on the OTCQB under the trading symbol
“RGRX.” On April 1, 2019, the last reported sale price of our common stock was $0.24 per share.
Investing in our securities involves a high degree of risk.
You should review carefully the risks and uncertainties described under the heading “Risk Factors” beginning on page
7 of the Prospectus and beginning on page 14 of the Annual Report, and under similar headings in any further amendments or supplements
to the Prospectus before you decide whether to invest in our securities.
Neither the Commission nor any state securities commission
has approved or disapproved of these securities or determined if the Prospectus or this prospectus supplement is truthful or complete.
Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is
April 2, 2019.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year
ended December 31, 2018
or
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition
period from
to
Commission
file number: 001-15070
RegeneRx
Biopharmaceuticals, Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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52-1253406
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State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization
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Identification No.)
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15245 Shady Grove Road, Suite 470, Rockville, MD
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20850
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s
telephone number, including area code: 301-208-9191
Securities
registered pursuant to Section 12(b) of the Act: None.
Securities
registered pursuant to section 12(g) of the Act:
Common
Stock, $0.001 par value, including associated Series A Participating Cumulative Preferred Stock Purchase Rights
Warrants
to Purchase Common Stock, $0.001 par value
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
¨
Yes
þ
No
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
¨
Yes
þ
No
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
þ
Yes
¨
No
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
þ
No
¨
Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K
¨
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “accelerated filer,” “large accelerated filer”, “smaller reporting company”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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Emerging growth company
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If an emerging growth company,
indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Act).
¨
Yes
þ
No
As of March 15, 2019, the aggregate
market value of the voting stock held by non-affiliates of the registrant was approximately $11 million. Such aggregate market
value was computed by reference to the closing price of the Common Stock as quoted on the Over-the-Counter Bulletin Board, or
the OTC Bulletin Board, on March 15, 2019.
The number of shares outstanding
of the registrant’s common stock as of March 15, 2019 was 129,581,494.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
PART
I
This
Annual Report on Form 10-K, including the section entitled “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” contains forward-looking statements regarding us and our business, financial condition, results
of operations and prospects within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements
may be identified by the words “project,” “believe,” “anticipate,” “plan,” “expect,”
“estimate,” “intend,” “should,” “would,” “could,” “will,”
“may” or other similar expressions. In addition, any statements that refer to projections of our future financial
performance or capital resources, our clinical development programs and schedules, our anticipated growth and trends in our business,
the clinical and pharmaceutical applications of our products, our expectations about our competitive position in the marketplace,
potential business relationships and partnerships, and other characterizations of future events or circumstances are forward-looking
statements. We cannot guarantee that we will achieve the plans, intentions or expectations expressed or implied in our forward-looking
statements. There are a number of important factors that could cause actual results, levels of activity, performance or events
to differ materially from those expressed or implied in the forward-looking statements we make, including those described under
“Risk Factors” set forth below. In addition, any forward-looking statements we make in this report speak only as of
the date of this report, and we do not intend to update any such forward-looking statements to reflect events or circumstances
that occur after that date.
Item 1.
Business.
General
RegeneRx
Biopharmaceuticals, Inc. (“RegeneRx” or the “Company”) (OTCQB:RGRX) is a biopharmaceutical company focused
on the development of a novel therapeutic peptide, Thymosin beta 4, or Tß4, for tissue and organ protection, repair, and
regeneration. We have formulated Tß4 into three distinct product candidates in clinical development:
• RGN-259,
a preservative-free topical eye drop for regeneration of corneal tissues damaged by injury, disease or other pathology;
• RGN-352,
an injectable formulation to treat cardiovascular diseases, central and peripheral nervous system diseases, and other medical
indications that may be treated by systemic administration; and
• RGN-137,
a topical gel for dermal wounds and reduction of scar tissue.
We
are continuing strategic partnership discussions with biotechnology and pharmaceutical companies regarding the further clinical
development of all of our product candidates.
Current
Financial Status
On
February 27, 2019, we sold a series of convertible promissory notes to management, the Company’s Board of Directors and
accredited investors, including Essetifin S.p.A., our largest shareholder. The sale of the notes will result in gross
proceeds to the Company of $1,300,000 over two closings. The first closing in the amount of $650,000 occurred on February
27
th
and the second closing, also in the amount of $650,000 will occur within three days of the Company providing
notice of the enrollment of the first patent in the ARISE-3 clinical trial in DES sponsored by ReGenTree. ReGenTree has
informed us that they now expect the ARISE-3 clinical trial to occur in the second quarter of 2019. Because the Company does
not control the timing of the ARISE-3 clinical trial, we cannot be certain that this timing is correct or that it may not
change. The notes contain a $0.12 conversion price and the purchasers also received a warrant exercisable at $0.18 to
purchase additional shares of common stock equal to 75% of the number of shares into which each note is initially
convertible. At present, with the receipt of the sale proceeds from the first closing, coupled with the anticipated proceeds
from the second closing, we will have sufficient cash to fund planned operations through the first quarter of 2020. We
continuously monitor our cash use as well as the clinical timelines.
We
continue to evaluate options including the licensing of additional rights to commercialize our clinical products as well as raising
capital through the capital markets. However, our ability to raise additional capital raises significant concerns about our ability
to continue as a going concern. Since inception, and through December 31, 2018, we have an accumulated deficit of $106 million
and we had cash and cash equivalents of $237,261 as of December 31, 2018. We anticipate incurring additional operating losses
in the future as we continue to explore the potential clinical benefits of Tß4-based product candidates over multiple indications.
We have entered into a series of strategic partnerships under licensing and joint venture agreements where our partners are responsible
for advancing development of our product candidates by sponsoring multiple clinical trials.
On
March 2, 2018, we entered into a warrant reprice, exercise and issuance agreement (the “Reprice Agreement”) with the
holders of the warrants issued in the 2016 Offering. Under the terms of the Reprice Agreement, in consideration of the holders
exercising in full all of the 2016 Offering warrants the exercise price per share of the warrants was reduced to $0.20 per share.
In addition, and as further consideration, we issued to the holders of the 2016 Offering 3,860,294 new warrants with an exercise
price of $0.2301 per share. We received gross proceeds of approximately $1,029,000 pursuant to the exercise and issued 5,147,059
shares of common stock. Pursuant to the terms of the Reprice Agreement the exercise price of the new warrants was reduced from
$0.2301 to $0.125 as a result of the March 2019 note sale.
Current
Clinical Status
In
January 2015, we entered into a Joint Venture Agreement with GtreeBNT whereby we created ReGenTree LLC, (“ReGenTree”
or “Joint Venture”, jointly owned by us and GtreeBNT, which will commercialize RGN-259 for treatment of dry eye and
neurotrophic keratopathy, an orphan indication in the United States. We are entitled to royalties as a percentage of net sales
ranging from single digits to low-double digits based on the medical indications approved and whether the Joint Venture commercializes
products directly or through a third party. RegeneRx possesses one of three board seats of ReGenTree and certain major decisions
and transactions within ReGenTree, such as commercialization strategy, mergers, and acquisitions, require RegeneRx’s board
designee’s consent. We currently hold a 38.5% ownership interest in ReGenTree. This ownership interest may be further reduced
to as low as 25% once ReGenTree obtains FDA approval of an NDA for Dry Eye Syndrome in the U.S. In the event ReGenTree is acquired,
or a change of control occurs following achievement of an NDA, RegeneRx shall be entitled to a minimum of 40% of all proceeds
paid or payable and will forgo any future royalties.
To
date ReGenTree has sponsored a Phase 2/3 clinical trial (“ARISE-1”) and Phase 3 clinical trials in patients with dry
eye syndrome (“DES”) (“ARISE-2”) and in patients with neurotrophic keratopathy (“NK”) (“SEER-1”),
all in the U.S. In May 2016, we reported the results of the 317-patient ARISE-1 trial and in October 2017, we reported the results
of the ARISE-2 trial. The ARISE-2 study, which was sponsored by ReGenTree and managed by Ora, Inc. pursuant a recent contract
between the parties, demonstrated a number of statistically significant improvements in both signs and symptoms of dry eye syndrome
with 0.1% RGN-259 versus placebo, while showing excellent safety, comfort, and tolerability profiles. The ocular discomfort symptom
showed a statistically significant reduction in the RGN-259-treated group at day 15 as compared to placebo (p=0.0149) in the change
from baseline. For sign, RGN-259 also improved the dry eye patient’s ability to withstand an exacerbated condition in a
patient subgroup with both compromised corneal fluorescein staining and Schirmer’s test at baseline. In this population,
RGN-259 showed superiority over placebo in reducing corneal fluorescein staining in the change from baseline at days 15 and 29
(p=0.0207 and 0.0254, respectively). RGN-259 confirmed its global effects on dry eye syndrome and fast onset in multiple sign
and symptom efficacies with no safety issues in the ARISE-1 and ARISE-2 studies as well as in the pooled data, although ARISE-2
was not successful in duplicating the results of ARISE-1 where the study population was limited and less diversified. ReGenTree
is proceeding with its RGN-259 development plan as discussed with the FDA in April 2018. Most recently, ReGenTree reaffirmed that
the manufacturing of the investigational product for ARISE-3 has been completed and the protocol for the study has been finalized.
ReGenTree and Ora, Inc. have entered into a contract for management of ARISE-3. Ora, Inc. recently initiated the study with the
first patient anticipated to be enrolled in the second quarter of 2019.
The
NK trial (SEER-1), a smaller study in an orphan population, has enrolled seventeen patients thus far, and has several additional
patients being screened, with a goal of forty-six. ReGenTree has expanded its efforts to accelerate patient enrollment by offering
incentives to each study site based on numbers of enrollees as well as payments to referral sites. Earlier in 2018, ReGenTree
disclosed that 7 of 17 patients enrolled SEER-1 have completely healed. To participate in the trial the patients were required
to have a persistent epithelial defect (non-healing corneal wound). While these preliminary observations are encouraging, it should
be noted that the patients and treating physicians remain masked while the trial is on-going, so it is not known whether the healed
patients are in the RGN-259 group, placebo group, or distributed among both. As of the date of this report, we do not know when
this study will be completed.
GtreeBNT
has developed the CMC (chemistry, manufacturing and controls) dossier required for Phase 3 clinical trials and commercialization
in the U.S. and in Korea. This comprehensive and critical effort ensures that final drug product manufacturing, packaging, stability,
purity, reproducibility, etc., meets regulatory guidelines and product specifications. The product of this activity is the current
product format being utilized in the U.S. trials being conducted by ReGenTree and will also be utilized in the planned clinical
activity to be conducted by GtreeBNT under the RGN-259 license agreement for Pan Asia.
In
February 2017, our licensee for RGN-137, GtreeBNT, received permission from the U.S. FDA to sponsor a Phase 3 clinical trial using
RGN-137 to treat patients with epidermolysis bullosa (EB), a genetic disease that causes severe blistering of the skin and internal
organs. In August 2017, the Company amended the License Agreement for RGN-137 held by GtreeBNT. Under the amendment the Territory
was expanded to include Europe, Canada, South Korea, Australia and Japan. GtreeBNT initiated a small open trial in patients with
EB in December 2018 to evaluate RGN-137 in such patients prior to sponsoring a larger Phase 3 trial.
Currently,
we have active partnerships in four major territories: North America, Europe, China and Pan Asia. Our partners have been moving
forward and making progress in each territory. In each case, the cost of development is being borne by our partners with no financial
obligation for RegeneRx. We still have significant clinical assets to develop, primarily RGN-352 (injectable formulation of Tß4
for cardiac and CNS disorders) in the U.S., most of Asia, and Europe; RGN-259 in the EU. In August 2017 we amended the RGN-137
License Agreement with GtreeBNT, expanding the territory to include Europe, Canada, South Korea, Australia and Japan. Regarding
RGN-259, our goal is to wait until satisfactory results are obtained from the current ophthalmic clinical program in the U.S.
before moving into the EU. This should allow us to obtain a higher value for the asset at that time. However, we intend to continue
to develop RGN-352, our injectable systemic product candidate for cardiac and central nervous system indications, either by obtaining
grants to fund a Phase 2a clinical trial in the cardiovascular or central nervous system fields or finding a suitable partner
with the resources and capabilities to develop it as we have with RGN-259.
We
anticipate incurring additional operating losses in the future as we continue to explore the potential clinical benefits of Tß4-based
product candidates over multiple indications. To fund further development and clinical trials we have entered into a series of
strategic partnerships under licensing and joint venture agreements (see “Strategic Partnerships” below) where our
partners are responsible for advancing development of our product candidates with multiple clinical trials.
Overview
of Tß4
Tß4
is a synthetic copy of a naturally occurring 43-amino acid peptide that was originally isolated from bovine thymus glands. It
plays a vital role in cell structure and motility and in the protection, regeneration, remodeling and healing of tissues.
Although
it is recognized that wound healing and tissue regeneration are complex processes, most companies working to develop new drugs
in this area have focused primarily on the development of growth factors and genetic therapies to stimulate healing and have,
to date, failed to demonstrate dramatic improvements in the healing process. Numerous preclinical animal studies, published by
independent researchers, have identified several important biological activities involving Tß4 that we believe make it potentially
useful as a wound healing, repair and tissue regenerating agent. These activities include:
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Progenitor
(Stem) Cell Recruitment and Differentiation.
Independent research
published in the journal
Nature
in November 2006 featured the discovery that Tß4
is the key signaling molecule that recruits and triggers adult epicardial progenitor
cells, or EPCs, to differentiate into coronary blood vessels. EPCs are partially differentiated
stem cells that can further differentiate into specific cell types when needed. Confirmatory
research published in 2009 in the
Journal of Molecular and Cellular Cardiology
concluded that Tß4 is responsible for the initiation of the embryonic coronary
developmental program and EPC differentiation in adult mice. These publications confirm
that Tß4’s interaction with EPCs is necessary for the maintenance of a healthy
adult animal heart, as well as for normal embryo and fetal heart development in mammals.
In Neuroscience (2009 and 2010), and the J. Neurosurgery (2010), Tß4 was shown
to similarly stimulate oligodendrogenesis,
i.e
., the differentiation of oligodendroctye
progenitor cells into myelin-producing oligodendrocytes, whereby restoring functional
recovery in animal models of multiple sclerosis, stroke, and traumatic brain injury.
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Actin
Regulation.
Tß4 regulates actin, which comprises up to 10% of
the protein of non-muscle cells in the body and plays a central role in cell structure
and in the movement of cells. Independent research studies have indicated that Tß4
stimulates the migration of human keratinocytes, or skin cells, as well as corneal epithelial
cells that protect the eye, human endothelial cells and progenitor cells of the heart
and brain. Endothelial cells are the major cell type responsible for the formation of
new blood vessels, a process known as angiogenesis. Certain of these studies conducted
at the National Institutes of Health, or NIH, were the first to suggest the role of Tß4
in wound healing. The data from these studies encouraged us to license the rights to
Tß4 from the NIH in 2001 and to launch an initial clinical development program
that targeted the use Tß4 for chronic dermal wounds.
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Reduction
of Inflammation and scar tissue formation.
Uncontrolled inflammation
is the underlying basis of many pathologies and injuries. Independent research has shown
that Tß4 is a potent anti-inflammatory agent in skin cells and in corneal epithelial
cells in the eye. Tß4 has also been shown to decrease the levels of inflammatory
mediators and to significantly reduce the influx of inflammatory cells in the reperfused
heart of animals. More recent preclinical research suggests that Tß4 blocks activation
of the NFκB pathway, which is involved in DNA activation of inflammatory mediators,
thereby modulating inflammation in the body. This anti-inflammatory activity may explain,
in part, the mechanism by which Tß4 appeared to improve functional outcome in the
mouse multiple sclerosis model described above, as well as promoting repair in the heart
and skin. In the skin, it has been shown to reduce scar formation by reduction of infiltration
of myofibroblasts. Identifying a factor such as Tß4 that reduces scarring and blocks
activation of NFκB suggests that Tß4 could have additional important therapeutic
applications for inflammation-related diseases, such as cancer, osteoarthritis, rheumatic
diseases, autoimmune diseases, inflammatory pulmonary disease and pancreatitis.
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Collagen
and Laminin-5 Stimulation.
Tß4 has a number of additional biological
activities shown to reduce inflammation, stimulate the formation of collagen, and up-regulate
the expression of laminin-5, a subepithelial basement membrane protein. Both collagen
and laminin-5 are central to healthy tissue, wound repair and the prevention of disease.
Laminin-5 promotes cell migration and maintains cell-cell and cell-matrix contacts for
intact tissues which are important for preventing fluid loss and bacterial infection.
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Anti-Apoptosis.
Tß4
has been shown to prevent apoptosis, or programmed cell death, in two animal models and
in two tissue types. In the rodent model, corneal apoptosis, or loss of corneal epithelial
cells leading to corneal epithelial thinning, was prevented through topical administration
of Tß4 eye drops. In the heart muscle of ischemic animal models, such as in mice
and pigs, cell death was prevented by either local or systemic administration of Tß4.
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Tß4
has shown efficacy in heart repair and regeneration in numerous animal models. A 2004 paper in
Nature
showed that it could
reduce the lesion size, improve cardiac function and promote survival. The 2006
Nature
publication mentioned above further
concluded that Tß4’s interaction with EPCs resulted in the formation of cardiomyocytes that repaired damaged myocardium,
or heart tissue, in mice after an induced acute myocardial infarction, or AMI, commonly known as a heart attack. Research published
in the journal
Circulation
showed Tß4’s cardioprotective effects in a pig ischemic-reperfusion model. This
pig model is accepted as an important model upon which to base human clinical research, as pigs are larger mammals, the anatomy
of the pig heart is similar to that of the human heart, and vascular response processes are completed five to six times faster
in pigs than in humans, so that long-term results can be obtained in a relatively short period of time. This research also identified
Tß4’s interaction with EPCs as the underlying basis of cardioprotection through the differentiation of EPCs into cardiomyocytes,
yielding statistically significant cardiac functional recovery results when compared to the administration of placebo.
Similar
research in the area of brain and central nervous system tissues also showed efficacy of repair and regeneration was published
in the journal Neuroscience in 2009. This publication concluded that Tß4 triggered the differentiation of oligodendrocyte
progenitor cells to form myelin-producing oligodendrocytes, which led to the remyelination of axons in the brain of mice with
experimental autoimmune encephalomyelitis, or EAE. This mouse model is an accepted small animal model for the study of multiple
sclerosis. Research published in the Journal of Neurosurgery in 2010 and also in the Journal of Neurological Science in 2014 showed
that Tß4 could improve functional neurological outcome in an animal stroke model. A second study was published in the Journal
of Neurosurgery in 2011 demonstrating that administration of Tß4 can significantly improve histological and functional outcomes
in rats with traumatic brain injury, or TBI, indicating that Tß4 has considerable therapeutic potential for patients with
TBI. More recently, researchers studying Tß4 under a material transfer agreement (MTA) found that Tß4 had beneficial
effects in animal models of peripheral neuropathy, one of the major complications of diabetes. This research was published in
the Journal of Neurobiology of Disease in December 2012 and appears to corroborate previous findings using Tß4 for repair
of central nervous system disorders. A paper in Neuropharmacology in 2014 found many benefits of Tß4 administration in a
rat model of spinal cord injury, including decreased lesion size at 7 days, increased neural and oligodendrocyte survival, increase
levels of myelin basic protein (a marker of mature oligodendrocytes), decreased ED1 (a marker of activated microglia/macrophages),
and decreased proinflammatory cytokines. Thus, Tß4 has efficacy for repair and regeneration in several nervous system injury
models including MS, TBI, stroke, peripheral neuropathy, and spinal cord injury and there will likely be additional applications
in this area.
We believe that these various biological activities work in concert to
play a vital role in the healing and repair of injured or damaged tissue and suggest that Tß4 is an essential component
of the tissue protection and regeneration process that may lead to many potential medical applications. All of our product candidates
utilize Tß4 as the active pharmaceutical ingredient (API), which is manufactured by solid-phase peptide synthesis and is
an exact copy of the naturally occurring peptide. We have created three distinct formulations for various routes of administration
and medical indications.
Our
Product Candidates
RGN-259
RGN-259
is our proprietary preservative-free eye drop formulation of Thymosin beta 4. In September 2011, we completed a Phase 2a exploratory
clinical trial evaluating the safety and efficacy of RGN-259 in 72 patients with moderate dry eye syndrome. In November 2011,
we reported preliminary safety and efficacy results from the trial. RGN-259 was deemed safe and well-tolerated, with no observed
drug-related adverse events.
In
June 2012, we reported preliminary results from a double-masked, vehicle-controlled, physician-sponsored Phase 2 clinical trial
evaluating RGN-259 for the treatment of nine patients (18 eyes) with severe dry eye. RGN-259 was observed to be safe and well-tolerated
and met key efficacy objectives with statistically significant sign and symptom improvements, compared to vehicle control, at
various time intervals, including 28 days post-treatment.
Consistent
with the reduction of ocular discomfort and fluorescein staining at the 28-day follow-up visit, other improvements seen in the
RGN-259-treated patients included tear film breakup time and increased tear volume production. Likewise, these improvements were
seen at other time points in the study. These results were published in Cornea in 2015.
In
September 2015, ReGenTree began the Phase 2/3 ARISE-1 clinical trial in patients with dry eye syndrome (and the Phase 3 SEER-1
clinical trial in patients with neurotrophic keratopathy (“NK”), both in the U.S. In May 2016, we reported the results
of the 317-patient ARISE-1 dry eye trial. In the trial, RGN-259 demonstrated statistically significant improvements in both signs
and symptoms of dry eye with 0.05% and 0.1% RGN-259 compared to placebo in a dose dependent manner during a 28-day dosing period.
While the primary outcome measures were not met, several key related pre-specified endpoints and subgroups of patients with more
severe dry eye showed statistically significant treatment effects. These results confirmed the findings from the previous Phase
2 trial providing clear direction for the clinical regulatory pathway and remaining registration trials for RGN-259. Shortly following
the ARISE-1 trial, the FDA approved ReGenTree’s Phase 3 ARISE-2 dry eye protocol and we initiated the ARISE-2 trial that
enrolled approximately 600 patients.
The
ARISE-2 study, which was sponsored by ReGenTree and managed by Ora, Inc., demonstrated a number of statistically significant improvements
in both signs and symptoms of dry eye syndrome with 0.1% RGN-259 versus placebo, while showing excellent safety, comfort, and
tolerability profiles. The ocular discomfort symptom showed a statistically significant reduction in the RGN-259-treated group
at day 15 as compared to placebo (p=0.0149) in the change from baseline. For sign, RGN-259 also improved the dry eye patient’s
ability to withstand an exacerbated condition in a patient subgroup with both compromised corneal fluorescein staining and Schirmer’s
test at baseline. In this population, RGN-259 showed superiority over placebo in reducing corneal fluorescein staining in the
change from baseline at days 15 and 29 (p=0.0207 and 0.0254, respectively). RGN-259 confirmed its global effects on dry eye syndrome
and fast onset in multiple sign and symptom efficacies with no safety issues in the ARISE-1 and ARISE-2 studies as well as in
the pooled data, although ARISE-2 was not successful in duplicating the results of ARISE-1 where the study population was limited
and less diversified.
In
February 2019 ReGenTree initiated a 700-patient ARISE-3 trial in patients with dry eye syndrome to confirm the results observed
in ARISE-2. We anticipate the first patient will be enrolled in the second quarter of 2019.
Strategic
Partnerships
Lee’s
Pharmaceuticals.
We are a party to a license agreement with Lee’s Pharmaceutical for the license of Thymosin Beta
4 in any pharmaceutical form, including our RGN-259, RGN-352 and RGN-137 product candidates, in China, Hong Kong, Macau and Taiwan.
In February 2019, the License Agreement was assigned by Lee’s to their affiliate, Zhaoke Ophthalmology Pharmaceutical Limited.
Lee’s previously filed an IND with the Chinese FDA to conduct a Phase 2, randomized, double-masked, dose-response clinical
trial with RGN-259 in China for dry-eye syndrome. Lee's subsequently informed us that it received notice from China's FDA declining
its IND application for a Phase 2b dry eye clinical trial because the API was manufactured outside of China. The API was manufactured
in the U.S. and provided to Lee's by RegeneRx pursuant to a license agreement to develop RGN-259 ophthalmic eye drops in the licensed
territory. However, in mid-2016, we were informed by Lee’s that the CFDA modified its manufacturing regulations and will
now allow Chinese companies to utilize API manufactured outside of China for Phase 1 and 2 clinical trials. We have not yet been
informed of a projected starting date for Phase 2 trials.
GtreeBNT.
We are a party to a license agreement with GtreeBNT for the license of RGN-259 related to certain development and commercialization
rights for RGN-259, in Asia (excluding China, Hong Kong, Macau and Taiwan). Separately, we licensed GtreeBNT the rights to RGN-137
which was recently amended as discussed above. GtreeBNT is currently our second largest stockholder. GtreeBNT filed an IND with
the Korean Ministry of Food and Drug Safety to conduct a Phase 2/3 study with RGN-259 in patients with dry eye syndrome and in
July 2015 received approval to conduct the trial. In late 2016 GtreeBNT informed us that it believes marketing approval in the
U.S. will allow expedited marketing in Korea, possibly without the need for a clinical trial. At this point, we are still awaiting
marketing approval in the U.S.
U.S.
Joint Venture (ReGenTree, LLC).
We
are a party to a Joint Venture Agreement with GtreeBNT and a License Agreement with ReGenTree for the commercialization of RGN-259
for treatment of dry eye and neurotrophic keratopathy in the United States, as well as any other relevant ophthalmic indications.
In
September 2015, ReGenTree began the Phase 2/3 ARISE-1 clinical trial in patients with dry eye syndrome (and the Phase 3 SEER-1
clinical trial in patients with neurotrophic keratopathy (“NK”), both in the U.S. In May 2016, we reported the results
of the 317-patient ARISE-1 dry eye trial. In the trial, RGN-259 demonstrated statistically significant improvements in both signs
and symptoms of dry eye with 0.05% and 0.1% RGN-259 compared to placebo in a dose dependent manner during a 28-day dosing period.
While the primary outcome measures were not met, several key related pre-specified endpoints and subgroups of patients with more
severe dry eye showed statistically significant treatment effects. These results confirmed the findings from the previous Phase
2 trial providing clear direction for the clinical regulatory pathway and remaining registration trials for RGN-259. Shortly following
the ARISE-1 trial, the FDA approved ReGenTree’s Phase 3 ARISE-2 dry eye protocol and we initiated the ARISE-2 trial that
enrolled approximately 600 patients.
The
ARISE-2 study, which was sponsored by ReGenTree and managed by Ora, Inc., demonstrated a number of statistically significant improvements
in both signs and symptoms of dry eye syndrome with 0.1% RGN-259 versus placebo, while showing excellent safety, comfort, and
tolerability profiles. The ocular discomfort symptom showed a statistically significant reduction in the RGN-259-treated group
at day 15 as compared to placebo (p=0.0149) in the change from baseline. For sign, RGN-259 also improved the dry eye patient’s
ability to withstand an exacerbated condition in a patient subgroup with both compromised corneal fluorescein staining and Schirmer’s
test at baseline. In this population, RGN-259 showed superiority over placebo in reducing corneal fluorescein staining in the
change from baseline at days 15 and 29 (p=0.0207 and 0.0254, respectively). RGN-259 confirmed its global effects on dry eye syndrome
and fast onset in multiple sign and symptom efficacies with no safety issues in the ARISE-1 and ARISE-2 studies as well as in
the pooled data, although ARISE-2 was not successful in duplicating the results of ARISE-1 where the study population was limited
and less diversified. Most recently, ReGenTree reaffirmed that the manufacturing of the investigational product for ARISE-3 has
been completed and the protocol for the study has been finalized. Ora, Inc. recently initiated the study with the first patient
anticipated to be enrolled in the second quarter of 2019.
RGN-352
During
2009, we completed a Phase 1a and Phase 1b clinical trial evaluating the safety, tolerability and pharmacokinetics of the intravenous
administration of RGN-352 in 60 healthy subjects (40 in each group, 20 of whom participated in both Phases). Based on the results
of these Phase 1 trials and extensive preclinical efficacy data published in peer-reviewed journals, in the second half of 2010,
we began start-up activities for a Phase 2 study to evaluate RGN-352 (Tß4 Injectable Solution) in patients who had suffered
an AMI. We had planned to begin enrolling patients in this clinical trial in the second quarter of 2011. However, in March 2011,
we were notified by the FDA that the trial was placed on clinical hold as a result of our contract manufacturer’s alleged
failure to comply with the current Good Manufacturing Practice (cGMP) regulations. The manufacturer has since closed its manufacturing
facility and filed for bankruptcy protection. The FDA prohibited us from using any of the active drug or placebo formulated by
this manufacturer in human trials; consequently, we must have study drug (RGN-352 and RGN-352 placebo) manufactured by a new cGMP-compliant
manufacturer in the event we seek to move forward with this trial. While we have identified a qualified manufacturer for RGN-352,
we elected to postpone activities on this trial until the requisite funding or a partner is secured.
In
addition to the potential application of RGN-352 for the treatment of cardiovascular disease, preclinical research published in
the scientific journals Neuroscience and the Journal of Neurosurgery, among others, indicates that RGN-352 may also prove useful
for patients with multiple sclerosis, or MS, as well as patients suffering a stroke, traumatic brain injury, peripheral neuropathy,
or spinal cord injury. In these preclinical studies, the administration of Tß4 resulted in regeneration of neuronal tissue
by promoting remyelination of axons and stimulating oligodendrogenesis, resulting in improvement of neurological functional activity.
In 2012, researchers studying Tß4 under a material transfer agreement (MTA) found that Tß4 had beneficial effects
in animal models of peripheral neuropathy, one of the major complications of diabetes. This research was published in the journal
of Neurobiology of Disease in 2012 and appears to corroborate previous findings using Tß4 for repair of central nervous
system disorders. We are discussing possible partnership opportunities with companies interested in developing RGN-352 for cardiac
and central nervous system indications and are working with an Asian-based medical center seeking grant funding for cardiovascular
studies.
Based
on our Phase 1 data and the preclinical research discussed above, we are evaluating various opportunities for government funding
for a Phase 2a clinical trial to show proof-of-concept in each case while also talking with prospective strategic partners with
the interest, capabilities and resources to further develop product candidate in these fields.
RGN-137
Clinical
Development — Epidermolysis Bullosa (EB).
Starting in 2005, we began conducting a Phase 2 clinical
trial designed to assess the safety and effectiveness of RGN-137 for the treatment of patients with EB. EB is a genetic disease
of approximately 10 gene mutations that results in fragile skin and other epithelial structures (e.g., cornea and GI tract) that
can blister spontaneously or separate at the slightest trauma or friction, creating a wound that at times does not heal or heals
poorly. In severe cases, recurrent blistering and tissue loss may be life threatening. EB has been designated as an “orphan”
indication by the FDA’s Office of Orphan Drugs. We closed the Phase 2 trial in late 2011 and we submitted the final report
to the FDA in 2014. In February 2017, GtreeBNT received permission from the U.S. FDA to sponsor a Phase 3 clinical trial using
RGN-137 to treat patients with EB. In December 2018, GtreeBNT initiated a small open trial in a limited number of patients with
EB.
Clinical
Development — Pressure Ulcers.
In late 2005, we began conducting Phase 2 clinical trial designed
to assess the safety and effectiveness of RGN-137 for the treatment of patients with chronic pressure ulcers, commonly known as
bedsores.
In
January 2009, we reported final data from this trial. RGN-137 was well-tolerated at all three dose levels studied, with no dose-limiting
adverse events, which achieved the primary objective of the study. A follow-on evaluation, reported at the 3rd International Symposium
on the Thymosins in Health and Disease in March 2012, showed that for those pressure ulcer patients’ wounds that healed,
RGN-137 mid dose (0.02% Tβ4 gel product) accelerated wound closure with a median time to healing of 22 days as compared to
57 days for the placebo. Although those results are clinically significant, they were not statistically significant.
Clinical
Development — Venous Stasis Ulcers.
In mid-2006 we began conducting a Phase 2 clinical trial designed
to assess the safety and effectiveness of RGN-137 for the treatment of patients with venous stasis ulcers. Venous stasis ulcers
are a common type of chronic wound that develops on the ankle or lower leg in patients with chronic vascular disease. In these
patients’ blood flow in the lower extremities is impaired leading to venous hypertension, edema (swelling) and mild redness
and scaling of the skin that gradually progresses to ulceration. In 2009, we reported final data from that trial. Those results
were both clinically and statistically significant.
Our
Strategy
We
seek to maximize the value of our product candidates by advancing their clinical development and then identifying suitable partners
for further development, regulatory approval, and marketing. We intend to engage in strategic partnerships with companies with
clinical development and commercialization strengths in desired pharmaceutical therapeutic fields. We are actively seeking partners
with suitable infrastructure, expertise and a long-term initiative in our medical fields of interest. To that end, we have entered
the licensing and joint ventures discussed above.
In
2004, we entered into a strategic partnership for development and marketing of RGN-137 and RGN-352 for specified fields of use
in Europe and other contiguous countries with Sigma-Tau Group, which was subsequently acquired by Alfa Wassermann S.p.A., both
Italian pharmaceutical companies. Pursuant to the terms of the license, we notified Alfa Wassermann that the license expired by
its terms and we, therefore, reacquired rights to our Tß4-based products in the licensed territory. In August 2017, the
Company amended the License Agreement for RGN-137 held by GtreeBNT. Under the amendment the Territory was expanded to include
Europe, Canada, South Korea, Australia and Japan. Further, we now control the cardiovascular and neurovascular assets (RGN-352)
in the EU and are able to consolidate them with similar assets in the U.S. and other territories in Asia to create a worldwide
portfolio that we believe will be more attractive to multi-national pharmaceutical companies.
Manufacturing
We
use a major contract manufacturer to produce bulk Tß4, which is the active pharmaceutical ingredient, or API, in our product
candidates by an established and proven manufacturing process known as solid-phase peptide synthesis. While we do not currently
have long-term supply agreements in place, we and ReGenTree intend to establish a long-term supply arrangement with at least one
manufacturer once practicable. No assurance can be given, however, that such agreements will be negotiated on favorable terms,
or at all. Contractors are selected on the basis of their supply capability, ability to produce a product in accordance with Current
Good Manufacturing Practice, or cGMP, requirements of the FDA and ability to meet our established specifications and quality requirements.
Given our recent licensing and joint venture deals, our partner in Korea and the U.S. are working closely with our current primary
contract manufacturer on the cGMP validation process and consistency runs, among other things, to prepare for the manufacture
of bulk Tß4 for use in future clinical trials and commercialization of our formulated product candidates. Through ReGenTree
we are also identifying and qualifying other potential API manufacturers. RegeneRx will have access to the data resulting from
this endeavor should we need to use it for purposes outside the licensed territories.
We
also use a number of outside contract manufacturers to formulate bulk Tß4 into our product candidates, RGN-137, RGN-259
and RGN-352. We use separate manufacturers for each formulation of Tß4. All of these formulations may require modifications,
along with additional studies, as we advance our clinical development programs through commercialization.
Competition
We
are engaged in a business that is highly competitive, and our target medical indications are ones with significant unmet needs.
Consequently, there are many enterprises, both domestic and foreign, pursuing therapies and products that could compete with ours.
Most of these entities have financial and human resources that are substantially greater than ours, specifically with regard to
the conduct of clinical research and development activities, clinical testing and in obtaining the regulatory approvals necessary
to market pharmaceutical products. Brief descriptions of some of these competitive products follow:
RGN-259.
Most
specialty ophthalmic companies have a number of products on the market that could compete with RGN-259. There are numerous antibiotics
to treat eye infections to promote corneal wound healing and many eye lubrication products that are soothing to the eye and help
eye healing, many of which are sold without prescriptions. Companies also market steroids to treat certain conditions within our
area of interest. Allergan, Inc. markets Restasis
™
, Ophthalmic Emulsion,
an FDA-approved eye drop used to treat dry eye. Restasis, and other products, have been approved for marketing in certain other
countries where we have licensed RGN-259. Shire PLC is marketing its recently FDA-approved product, Xiidra. We believe RGN-259
is different from Restasis and Xiidra and any other product or product candidate available for dry eye in that it actively promotes
repair using a multi-faceted approach of increasing cell migration and laminin-5 production, and decreasing inflammation and apoptosis,
without any noted adverse effects.
RGN-352.
Currently,
we do not believe there are any approved pharmaceutical products for regenerating cardiac tissue following a heart attack, nor
for regeneration of nervous tissue or for the remyelination of axons of patients with multiple sclerosis or patients suffering
from traumatic brain injury. However, many pharmaceutical companies and research organizations are developing products, pharmacologic
and stem cell therapies and technologies that are intended to prevent cardiac damage, improve cardiac function, and regenerate
cardiac muscle after a heart attack. There are also companies developing products that are purported to remyelinate neurons and
provide functional improvement for patients suffering from multiple sclerosis, stroke, traumatic brain injury, and peripheral
neuropathy. If we, or a partner, were to successfully develop RGN-352 for cardiovascular or central nervous system indications,
such products would have to compete with other drugs or therapies currently being developed or marketed by large pharmaceutical
companies for similar indications.
RGN-137.
There are numerous companies developing new pharmaceutical products for wound healing and for EB, in particular. Products and
therapies such as antibiotics, honey-based ointments, silver-based compounds and low frequency cavitational ultrasound are also
used to treat certain types of dermal wounds. Moreover, dermal wound healing is a large and highly fragmented marketplace that
includes numerous therapeutic products and medical devices for treating acute and chronic dermal wounds. Most recently, various
other companies are attempting to develop genetic therapies to try to heal or prevent serious wound disorders.
Government
Regulation
In
the United States, the Federal Food, Drug, and Cosmetic Act, as amended, or FFDCA, and the regulations promulgated thereunder,
and other federal and state statutes and regulations govern, among other things, the testing, manufacturing, labeling, storing,
recordkeeping, distribution, advertising and promotion of our product candidates. Regulation by governmental authorities in the
United States and foreign countries will be a significant factor in the manufacturing and potential marketing of our product candidates
and in our ongoing research and product development activities. Any product candidate we develop will require regulatory approval
by governmental agencies prior to commercialization. In particular, human therapeutic products are subject to rigorous preclinical
studies, clinical trials and other approval procedures by the FDA and similar health authorities in foreign countries. The process
of obtaining these approvals and subsequent compliance with appropriate federal and state statutes and regulations requires the
expenditure of substantial resources.
Preclinical
studies must ordinarily be conducted to evaluate an investigational new drug’s potential safety by toxicology studies and
potential efficacy by pharmacology studies. The results of these studies, among other things, are submitted to the FDA as part
of an Investigational New Drug Application, or IND, which must be reviewed by the FDA before clinical trials can begin. Typically,
clinical evaluation involves a three-stage process. Phase 1 clinical trials are conducted with a small number of healthy volunteers
to determine the safety profile and the pattern of drug absorption, distribution, metabolism and excretion, and to assess the
drug’s effect on the patient. Phase 2, or therapeutic exploratory, trials are conducted with somewhat larger groups of patients,
who are selected by relatively narrow criteria yielding a more homogenous population that is afflicted with the target disease,
in order to determine preliminary efficacy, optimal dosages and expanded evidence of safety. Phase 2 trials should allow for the
determination of the dose to be used in Phase 3 clinical trials. Phase 3, or therapeutic confirmatory, large scale, multi-center,
comparative trials are conducted with patients afflicted with a target disease in order to provide enough data for the statistical
proof of safety and efficacy required by the FDA and other regulatory authorities. The primary objective of Phase 3 clinical trials
is to show that the drug confers therapeutic benefit that outweighs any safety risks. All clinical trials must be registered with
a central public database, such as www.clinicaltrials.gov, and once completed, results of the clinical trials must be entered
in the database.
The
results of these preclinical studies and clinical trials, along with detailed information on manufacturing, are submitted to the
FDA in the form of a New Drug Application, or NDA, for approval to commence commercial sales. The FDA’s review of an NDA
requires the payment of a user fee currently in excess of $1.8 million, which may be waived for the first NDA submitted by
a qualifying small business. In responding to an NDA, the FDA may refuse to file the application if the FDA determines that the
application does not satisfy its regulatory approval criteria, request additional information or grant marketing approval. Therefore,
even if we complete Phase 3 clinical trials for our product candidates and submit an NDA to the FDA, there can be no assurance
that the FDA will grant marketing approval, or if granted, that it will be granted on a timely basis. If the FDA does approve
a product candidate, it may require, among other things, post-marketing testing, including potentially expensive Phase 4 trials,
which monitor the safety of the drug. In addition, the FDA may in some circumstances impose risk evaluation and mitigation strategies
that may be difficult and expensive to administer. Product approvals may be withdrawn if compliance with regulatory requirements
is not maintained or if problems occur after the product reaches the market.
Among
the conditions for NDA approval is the requirement that the applicable clinical, pharmacovigilance, quality control and manufacturing
procedures conform on an ongoing basis with current Good Clinical Practices, Good Laboratory Practices, current Good Manufacturing
Practices, and computer information system validation standards. During the review of an NDA, the FDA will perform a pre-licensing
inspection of select clinical sites, manufacturing facilities and the related quality control records to determine the applicant’s
compliance with these requirements. To assure compliance, applicants must continue to expend time, money and effort in the area
of training, production and quality control. After approval of any product, manufacturers are subject to periodic inspections
by the FDA. If a company fails to comply with FDA regulatory requirements, FDA may pursue a wide range of remedial actions, including
seizure of products, corrective actions, warning letters and fines.
We
have received orphan drug designation from the FDA for RGN-137 for the treatment of EB and RGN-259 for the treatment of neurotrophic
keratopathy or NK, (now to be developed by ReGenTree). The FDA may designate a product or products as having orphan drug status
to treat a disease or condition that affects less than 200,000 individuals in the United States, or, if patients of a disease
number more than 200,000, the sponsor can establish that it does not realistically anticipate its product sales will be sufficient
to recover its costs. If a product candidate is designated as an orphan drug, then the sponsor may receive incentives to undertake
the development and marketing of the product, including grants for clinical trials, as well as a waiver of the user fees for submission
of an NDA application. For example, as described above, we received a grant from the FDA for our Phase 2 clinical trial of RGN-137
to treat patients with EB.
Generally,
if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it
has such designation, the product is entitled to marketing exclusivity for a period of seven years in the United States and ten
years in the EU. There may be multiple designations of orphan drug status for a given drug and for different indications. Orphan
drug designation does not guarantee that a product candidate will be approved by the FDA for marketing for the designation, and
even if a sponsor of a product candidate for an indication for use with an orphan drug designation is the first to obtain FDA
approval of an NDA for that designation and obtains marketing exclusivity, another sponsor’s application for the same drug
product may be approved by the FDA during the period of exclusivity if the FDA concludes that the competing product is clinically
superior. In this instance, the orphan designation and marketing exclusivity originally granted would be lost in favor of the
clinically superior product.
Intellectual
Property
We
hold worldwide patents and patent applications covering peptide compositions, uses and formulations related to dermal and ophthalmic
indications and other organ and tissue repair activities. In 2001, we entered into a license agreement with the NIH under which
we received an exclusive worldwide license from the NIH for all claims within the scope of the NIH’s patent application,
and any issued patents, covering the use of Tß4 as a tissue repair and regeneration factor. In 2007, patents were issued
in Europe and the United States related to the original NIH patent application. These patents expire in July 2019. Corresponding
patents have also been granted in Hong Kong, Australia and China and certain other territories. The issued European patent was
opposed by a third party at the European Patent Office and, in December 2009, we argued the case before the Opposition Division
of the European Patent Office in Munich, Germany and prevailed with certain amendments to the claims. In exchange for the exclusive
license, we agreed to make certain minimum royalty and milestone payments to the NIH.
We
hold a U.S. patent relating to the use of Tß4 for the treatment of congestive heart failure. This patent was issued in January
2012. In 2006, we were issued a patent in China for the use of Tß4 to treat EB. We also hold two patents for the treatment
of dry eye in the U.S. and a patent for certain neuro disorders, as well as peripheral neuropathy. Other patent applications for
our various product candidates, if issued, will offer protection in the U.S. and certain other territories through 2033.
We,
and our partners, have also filed additional U.S. and international patent applications covering various compositions, uses,
formulations and other components of Tß4, as well as for novel peptides resulting from our research efforts, the latest
of which were filed during 2015. There can be no assurance that these, or any other future patent applications under which we
have rights, will result in the issuance of a patent or that any patent issued will not be subject to challenge or opposition.
In the case of a claim of patent infringement by or against us, there can be no assurance that we will be able to afford the expense
of any litigation that may be necessary to enforce our proprietary rights or that relevant patents will not expire prior to approval
of any of our product candidates.
We
continuously evaluate our patents and patent applications in certain territories to determine whether it is cost-effective to
continue to maintain or prosecute them. In some cases, we have determined that the value or potential value of such patents and/or
applications is not worth the continued effort or expense and have either ceased efforts to pursue specific patents or abandoned
any that have short expiries or cover countries of minimal strategic interest to us or our partners. We will continue to evaluate
our portfolio and take such actions from time to time as appropriate.
Material
Agreements
National
Institutes of Health
We
are party to a license agreement with NIH under which we are obligated to pay an annual minimum royalty of $2,000. In 2013, we
amended certain provisions of the exclusive license; we were permitted to credit amounts paid to prosecute or maintain the licensed
patent rights during 2013 calendar year against the 2013 minimum annual royalty. Beginning in 2014, the minimum annual royalty
is $2,000. Additionally, we are obligated to pay the NIH a percentage of sales of qualifying product candidates, if any. There
have been no such sales to date. Through December 31, 2018, we have complied with all minimum royalty requirements, and no
milestone payments have been required under the agreement. The patent is due to expire in 2019.
Lee’s Pharmaceuticals
On
July 15, 2012, we entered into a License Agreement with Lee’s Pharmaceutical for the license of Tß4 in any pharmaceutical
formulation, including our RGN-259, RGN-352 and RGN-137 product candidates, in China, Hong Kong, Macau and Taiwan. The terms of
the License Agreement include aggregate potential milestone payments of up to $3.6 million and royalties ranging from low double
digit to high single digit royalties on commercial sales, if any. Under the License Agreement, Lee’s is responsible for
all developmental costs associated with each product candidate. We provided Tß4 to Lee’s at no charge for a Phase
2 ophthalmic clinical trial and will provide Tß4 to Lee’s for all other developmental and clinical work at a price
equal to our cost.
The
Company has discussed Lee’s development plans and we have continued to provide information as requested. Lee’s previously
filed an investigational new drug application IND with the Chinese FDA to conduct a Phase 2, randomized, double-masked, dose-response
clinical trial with RGN-259 in China for dry-eye syndrome. Lee’s subsequently informed us that it received notice from China's
FDA (CFDA) declining its investigational new drug (IND) application for a Phase 2b dry eye clinical trial because the API (active
pharmaceutical ingredient or Tß4) was manufactured outside of China. The API was manufactured in the U.S. and provided to
Lee's by RegeneRx pursuant to a license agreement to develop RGN-259 ophthalmic eye drops in the licensed territory. However,
in mid-2016, we were informed by Lee’s that the CFDA modified its manufacturing regulations and will now allow Chinese companies
to utilize API manufactured outside of China for Phase 1 and 2 clinical trials. We have not yet been informed of a projected starting
date for Phase 2 trials. In February 2019, the License Agreement was amended and assigned by Lee’s to their affiliate, Zhaoke
Ophthalmology Pharmaceutical Limited. There are no economic changes to the License Agreement.
GtreeBNT
On
March 7, 2014, we entered into license agreements with GtreeBNT Co., Ltd. The two Licensing Agreements are for the license of
territorial rights to two of our Thymosin Beta 4-based products candidates, RGN-259 and RGN-137.
Under
the License Agreement for RGN-259, our preservative-free eye drop product candidate, GtreeBNT will have the right to develop and
commercialize RGN-259 in Asia (excluding China, Hong Kong, Taiwan, and Macau). The rights will be exclusive in Korea, Japan, Australia,
New Zealand, Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Mongolia, Myanmar (Burma), Philippines, Singapore, Thailand,
Vietnam, and Kazakhstan, and semi-exclusive in India, Pakistan, Bangladesh, Bhutan, Maldives, Nepal, Sri Lanka, Kyrgyzstan, Tajikistan,
Turkmenistan and Uzbekistan, collectively, the Territory (the “259 Territory”). Under the License Agreement for RGN-259
we are eligible to receive aggregate potential milestone payments of up to $3.5 million. In addition, we are eligible to receive
royalties of a low double-digit percentage of any commercial sales of the licensed product sold by GtreeBNT in the 259 Territory.
Under
the License Agreement for RGN-137, our topical dermal gel product candidate, GtreeBNT will have the exclusive right to develop
and commercialize RGN-137 in the U.S. (the “137 Territory”). Under the License Agreement for RGN-137 we are eligible
to receive aggregate potential milestone payments of up to $3.5 million. In addition, we are eligible to receive royalties of
a low double-digit percentage of any commercial sales of our licensed product sold by GtreeBNT in the 137 Territory. Under an
amendment to the License Agreement for RGN-137, for which we were compensated, the 137 Territory was expanded to include Europe,
Canada, South Korea, Australia and Japan.
Both
the License Agreement for RGN-137 and the License Agreement for RGN-259 contain diligence provisions that require the initiation
of certain clinical trials within certain time periods that, if not met, would result in the loss of rights or exclusivity in
certain countries. GtreeBNT will pay for all developmental costs associated with each product candidate. We retain the manufacturing
and supply rights for Tß4 in the 259 Territory and 137 Territory and the parties will negotiate in good faith an exclusive
supply agreement for Tß4 as soon as practicable. We will also have the right to exclusively license any improvements made
by GtreeBNT to our products outside of the licensed territory on a royalty-free basis.
The
two firms have created a joint development committee and continue to discuss and the development of the licensed products and
share information relating thereto. Both companies will also share all non-clinical and clinical data and other information related
to development of the licensed product candidates.
ReGenTree
- U.S. Joint Venture
On
January 28, 2015, we entered into the Joint Venture Agreement with GtreeBNT, a shareholder in the Company and licensee in certain
Pan Asian countries. The Joint Venture Agreement provides for the creation of the Joint Venture, ReGenTree, LLC (“ReGenTree”),
jointly owned by the Company and GtreeBNT that will commercialize RGN-259 for treatment of dry eye and neurotrophic keratopathy
in the United States, as well as any other relevant ophthalmic indications.
GtreeBNT
is solely responsible for funding all of the product development and commercialization efforts of ReGenTree. GtreeBNT made an
initial contribution of $3 million in cash and received an initial equity stake of 51%. RegeneRx received and initial equity stake
of 49% of ReGenTree. GtreeBNT’s equity stake may increase (and RegeneRx’s would proportionally decrease) upon ReGenTree
achieving certain product development milestones (including receipt of a new drug application (“NDA”) by the U.S.
FDA). GtreeBNT has subsequently funded the initial Phase 2b/3 and the ongoing Phase 3 U.S. clinical trials for dry eye syndrome
and neurotrophic keratopathy, respectively.
Our
initial ownership interest in ReGenTree was 49% and was reduced to 38.5% after filing of the final clinical study report with
the FDA for the Phase 3 trial for Dry Eye Syndrome completed in 2017. Based on when, and if, ReGenTree achieves certain additional
development milestones in the U.S. with RGN-259, our equity ownership may be incrementally reduced to between 38.5% and 25%, with
25% being the final equity ownership upon FDA approval of an NDA for Dry Eye Syndrome in the U.S. In addition to our equity ownership,
RegeneRx retains a royalty on net sales that varies between single and low double digits, depending on whether commercial sales
are made by ReGenTree or a licensee. In the event the ReGenTree entity is acquired or there is a change of control that occurs
following achievement of an NDA, RegeneRx shall be entitled to a minimum of 40% of all proceeds paid or payable and will forgo
any future royalties.
The
Company is not required or otherwise obligated to provide financial support to ReGenTree.
ReGenTree
is responsible for executing all development and commercialization activities under the License Agreement, which activities will
be directed by a joint development committee comprised of representatives of the Company and GtreeBNT. The License Agreement has
a term that extends to the later of the expiration of the last patent covered by the License Agreement or 25 years from the first
commercial sale under the License Agreement. The License Agreement may be earlier terminated if the Joint Venture fails to meet
certain commercialization milestones, or if either party breaches the License Agreement and fails to cure such breach, or as a
result of government action that limits the ability of the Joint Venture to commercialize the product, as a result of a challenge
to a licensed patent, following termination of the license between the Company and certain agencies of the United States federal
government, or upon the bankruptcy of either party.
Development
Agreements
While
we are not currently directly engaged in development activities, historically we have entered into agreements with outside service
providers for the manufacture and development of Tß4, the formulation of Tß4 into our product candidates, the conduct
of nonclinical safety, toxicology and efficacy studies in animal models, and the management and execution of clinical trials in
humans. Terms of these agreements vary in that they can last from a few months to more than a year in duration. For additional
information regarding our research and development expenses over the past two years, see “Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Results of Operations” in this report.
Employees
We
currently have three full time employees including our President and CEO. We also retain three independent contractors. We believe
that we have good relations with our employees and contractors.
Corporate Information
We
were incorporated in Delaware in 1982 under the name Alpha 1 Biomedicals, Inc. In 2000, we changed our corporate name to RegeneRx
Biopharmaceuticals, Inc. Our principal executive office is located at 15245 Shady Grove Road, Suite 470, Rockville, Maryland
20850. Our telephone number is (301) 208-9191.
Available Information
Our
corporate website is
www.regenerx.com
. Our electronic filings with the U.S. Securities and Exchange Commission, or SEC,
including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to
these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available
free of charge through our website as soon as reasonably practicable after we have electronically filed such information with,
or furnished such information to, the SEC.
Item
1A. Risk Factors
Set
forth below and elsewhere in this report and in other documents we file with the SEC are risks and uncertainties that could cause
actual results to differ materially from the results contemplated by the forward-looking statements contained in this report.
The descriptions below include any material changes to and supersede the description of the risk factors affecting our business
previously disclosed in “Part II, Item 1A. Risk Factors” of the Annual Report.
Risks
Related to Our Liquidity and Need for Financing
Before
giving effect to any potential additional sales of our securities, we estimate that our existing capital resources coupled with
the proceeds from the February 2019 note sales will only be sufficient to fund our operations through the first quarter of 2020.
Even
though we sold a series of convertible promissory notes in February 2019 and will receive proceeds of $1,300,000, these proceeds
are only projected to fund our operations at the current level through the first quarter of 2020, therefore we will need to secure
additional operating capital to continue operations beyond the first quarter of 2020. We continuously monitor our cash use as
well as the clinical timelines. We will need to secure additional operating capital in 2019 or early 2020 and are evaluating options
including the licensing of additional rights to commercialize our clinical products as well as raising capital through the capital
markets which may cause a reduction in the trading price of our common stock.
We
will need substantial additional capital for the continued development of product candidates through marketing approval and for
our longer-term future operations.
We
anticipate that substantial new capital resources will be required to continue our longer-term product development efforts, including
any and all follow-on trials that will result from our current clinical programs beyond those currently contemplated, and to scale
up manufacturing processes for our product candidates. However, the actual amount of funds that we will need will be determined
by many factors, some of which are beyond our control. These factors include, without limitation:
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the
scope of our, or our partners’, clinical trials, which is significantly influenced
by the quality of clinical data achieved as trials are completed and the requirements
established by regulatory authorities;
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the
speed with which we, or our partners, complete our clinical trials, which depends on
our ability to attract and enroll qualifying patients and the quality of the work performed
by our clinical investigators and contract research organizations chosen to conduct the
studies;
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the
time required to prosecute, enforce and defend our intellectual property rights, which
depends on evolving legal regimes and infringement claims that may arise between us and
third parties;
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the
ability to manufacture at scales sufficient to supply commercial quantities of any of
our product candidates that receive regulatory approval, which may require levels of
effort not currently anticipated; and
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the
successful commercialization of our product candidates, which will depend on our, or
our partners’, ability to either create or partner with an effective commercialization
organization and which could be delayed or prevented by the emergence of equal or more
effective therapies.
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Emerging
biotechnology companies like us may raise capital through corporate collaborations and by licensing intellectual property rights
to other biotechnology or pharmaceutical enterprises. We intend to pursue this strategy, but there can be no assurance that we
will be able to enter into additional license agreements with respect to our intellectual property or product development programs
on commercially reasonable terms, if at all. There are substantial challenges and risks that will make it difficult to successfully
implement any of these alternatives. If we are successful in raising additional capital through such a license or collaboration,
we may have to give up valuable rights to our intellectual property. In addition, the business priorities of a strategic partner
may change over time, which creates the possibility that the interests of the strategic partner in developing our technology may
diminish and could have a potentially material negative impact on the value of our interest in the licensed intellectual property
or product candidates.
Further,
if we raise additional funds by selling shares of our common stock or securities convertible into our common stock the ownership
interest of our existing stockholders may be significantly diluted. If additional funds are raised through the issuance of preferred
stock or debt securities, these securities are likely to have rights, preferences and privileges senior to our common stock and
may involve significant fees, interest expense, restrictive covenants or the granting of security interests in our assets.
Our
failure to successfully address our short-term capital needs and our long-term liquidity requirements would have a material negative
impact on our business, including the possibility of surrendering our rights to some technologies or product opportunities, delaying
our clinical trials or ceasing our operations.
We
have incurred losses since inception and expect to incur significant losses in the foreseeable future and may never become profitable.
We
have not commercialized any product candidates to date and incurred net operating losses every year since our inception in 1982.
We believe these losses will continue for the foreseeable future, and may increase, as we pursue our product development efforts
related to Tß4. As of December 31, 2018, our accumulated deficit totaled approximately $106 million.
As
we expand our research and development efforts and seek to obtain regulatory approval of our product candidates to make them commercially
viable, we anticipate substantial and increasing operating losses. Our ability to generate revenues and to become profitable will
depend largely on our ability, alone or through the efforts of third-party licensees and collaborators, to efficiently and successfully
complete the development of our product candidates, obtain necessary regulatory approvals for commercialization, scale-up commercial
quantity manufacturing capabilities either internally or through third-party suppliers, and market our product candidates. There
can be no assurance that we will achieve any of these objectives or that we will ever become profitable or be able to maintain
profitability. Even if we do achieve profitability, we cannot predict the level of such profitability. If we continue to sustain
losses over an extended period of time and are not otherwise able to raise necessary funds to continue our development efforts
and maintain our operations, we may be forced to cease operations.
Our
common stock is quoted on the over-the-counter market, which subjects us to the SEC’s penny stock rules and may decrease
the liquidity of our common stock.
Our
common stock is traded over-the-counter on the OTC Bulletin Board. Over-the-counter markets are generally considered to be less
efficient than, and not as broad as, a stock exchange. There may be a limited market for our stock now that it is quoted on the
OTC Bulletin Board, trading in our stock may become more difficult and our share price could decrease. Specifically, you may not
be able to resell your shares of common stock at or above the price you paid for such shares or at all.
In
addition, our ability to raise additional capital may be impaired because of the less liquid nature of the over-the-counter markets.
While we cannot guarantee that we would be able to complete an equity financing on acceptable terms, or at all, we believe that
dilution from any equity financing while our shares are quoted on an over-the-counter market would likely be substantially greater
than if we were to complete a financing while our common stock is traded on a national securities exchange. Further, we are unable
to use short-form registration statements on Form S-3 for the registration of our securities, which could impair our ability to
raise additional capital as needed.
Our
common stock is also subject to penny stock rules, which impose additional sales practice requirements on broker-dealers who sell
our common stock. The SEC generally defines “penny stock” as an equity security that has a market price of less than
$5.00 per share, subject to certain exceptions. The ability of broker-dealers to sell our common stock and the ability of our
stockholders to sell their shares in the secondary market will be limited and, as a result, the market liquidity for our common
stock will likely be adversely affected. We cannot assure you that trading in our securities will not be subject to these or other
regulations in the future.
The
report of our independent registered public accounting firm contains explanatory language that substantial doubt exists about
our ability to continue as a going concern.
The
report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2018,
contains explanatory language that substantial doubt exists about our ability to continue as a going concern, without raising
additional capital. As described in this report, in February 2019, we sold a series of convertible promissory notes to accredited
investors and will receive gross proceeds of $1,300,000 which will fund planned operations through the first quarter of 2020.
We will need to secure additional operating capital to continue operations beyond the first quarter of 2020. Therefore, we are
seeking sources of capital, but if we are unable to obtain sufficient financing to support and complete these activities, then
we would, in all likelihood, experience severe liquidity problems and may have to curtail our operations. If we curtail our operations,
we may be placed into bankruptcy or undergo liquidation, the result of which will adversely affect the value of our common shares.
Risks
Related to Our Business and Operations
Our
planned Phase 2 clinical trial of RGN-352 was placed on clinical hold by the FDA in March 2011 due to non-compliance of cGMP regulations
by a contract manufacturer and we are unsure when, if ever, we will be able to resume this trial.
In
the second half of 2010, we implemented the development plans for our Phase 2 clinical trial to evaluate RGN-352 in patients who
have suffered an acute myocardial infarction, or AMI. We had planned to begin enrolling patients near the end of the first quarter
of 2011. However, in March 2011, we were notified by the FDA that the trial was placed on clinical hold as a result of our contract
manufacturer’s alleged failure to comply with current Good Manufacturing Practice (“cGMP”) regulations. The
FDA has prohibited us from using any of the active drug or placebo manufactured by this manufacturer in human trials, which will
require us to identify a cGMP-compliant manufacturer and to have new material produced in the event that we seek to resume this
trial. We learned that the contract manufacturer has closed its manufacturing facility and has filed for bankruptcy protection.
Significant preparatory time and procedures will be required before any new suitable manufacturer would be able to manufacture
RGN-352 for the AMI trial. Since we are unable to estimate the length of time that the trial will be on clinical hold, we have
elected to cease activities on this trial until the FDA clinical hold is resolved and the requisite funding might be secured.
Consequently, there can be no assurance that we will be able to timely initiate trial activities or complete this trial, if at
all. As of the date of this report, we have received no new information on that status of this trial.
All
of our drug candidates are based on a single compound.
Our
current primary business focus is the development of Tß4, and its analogues, derivatives and fragments, for the regeneration
and accelerated repair of damaged tissue from non-healing dermal and corneal wounds, cardiac injury, central/peripheral nervous
system diseases and other conditions, as well as an improvement in various functions, such as, but not limited to, cardiac and
neurological. Unlike many pharmaceutical companies that have a number of unique chemical entities in development, we are dependent
on a single molecule, formulated for different routes of administration and different clinical indications, for our potential
commercial success. As a result, any common safety or efficacy concerns for Tß4-based products that cross formulations would
have a much greater impact on our business prospects than if our product pipeline were more diversified.
We
may never be able to commercialize our product candidates.
Although
Tß4 has shown biological activity in
in vitro
studies and
in vivo
animal models and while we observed clinical
activity and efficacious outcomes in our recent RGN-259 Phase 2a trial and earlier Phase 2 dermal trials, we cannot assure you
that our product candidates will exhibit activity or importance in humans in large-scale trials. Our drug candidates are still
in research and development, and we do not expect them to be commercially available for the foreseeable future, if at all. Only
a small number of research and development programs ultimately result in commercially successful drugs. Potential products that
appear to be promising at early stages of development may not reach the market for a number of reasons. These include the possibility
that the potential products may:
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be
found ineffective or cause harmful side effects during preclinical studies or clinical
trials;
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fail
to receive necessary regulatory approvals;
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be
precluded from commercialization by proprietary rights of third parties;
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be
difficult to manufacture on a large scale; or
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be
uneconomical or otherwise fail to achieve market acceptance.
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If
any of these potential problems occurs, we may never successfully market Tß4-based products.
We
are subject to intense government regulation, and we may not receive regulatory approvals for our drug candidates.
Our
product candidates will require regulatory approvals prior to sale. In particular, therapeutic agents are subject to stringent
approval processes, prior to commercial marketing, by the FDA and by comparable agencies in most foreign countries. The process
of obtaining FDA and corresponding foreign approvals is costly and time-consuming, and we cannot assure you that such approvals
will be granted. Also, the regulations we are subject to change frequently and such changes could cause delays in the development
of our product candidates.
Three
of our drug candidates are currently in the clinical development stage, and we cannot be certain that we, or our partners, will
successfully complete the clinical trials necessary to receive regulatory product approvals. The regulatory approval process is
lengthy, unpredictable and expensive. To obtain regulatory approvals in the United States, we or a partner must ultimately demonstrate
to the satisfaction of the FDA that our product candidates are sufficiently safe and effective for their proposed administration
to humans. Many factors, known and unknown, can adversely impact clinical trials and the ability to evaluate a product candidate’s
safety and efficacy, including:
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the
FDA or other health regulatory authorities, or institutional review boards, or IRBs,
do not approve a clinical trial protocol or place a clinical trial on hold;
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suitable patients do not enroll
in a clinical trial in sufficient numbers or at the expected rate, for reasons such as
the size of the patient population, the proximity of patients to clinical sites, the
eligibility criteria for the trial, the perceptions of investigators and patients regarding
safety, and the availability of other treatment options;
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clinical
trial data is adversely affected by trial conduct or patient withdrawal prior to completion
of the trial;
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there
may be competition with ongoing clinical trials and scheduling conflicts with participating
clinicians;
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patients
experience serious adverse events, including adverse side effects of our drug candidates,
for a variety of reasons that may or may not be related to our product candidates, including
the advanced stage of their disease and other medical problems;
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patients
in the placebo or untreated control group exhibit greater than expected improvements
or fewer than expected adverse events;
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third-party
clinical investigators do not perform the clinical trials on the anticipated schedule
or consistent with the clinical trial protocol and good clinical practices, or other
third-party organizations do not perform data collection and analysis in a timely or
accurate manner;
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service
providers, collaborators or co-sponsors do not adequately perform their obligations in
relation to the clinical trial or cause the trial to be delayed or terminated;
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we
are unable to obtain a sufficient supply of manufactured clinical trial materials;
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regulatory
inspections of manufacturing facilities, which may, among other things, require us or
a co-sponsor to undertake corrective action or suspend the clinical trials, such as the
clinical hold with respect to our Phase 2 clinical trial of RGN-352;
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the
interim results of the clinical trial are inconclusive or negative;
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the
clinical trial, although approved and completed, generates data that is not considered
by the FDA or others to be clinically relevant or sufficient to demonstrate safety and
efficacy; and
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changes
in governmental regulations or administrative actions affect the conduct of the clinical
trial or the interpretation of its results.
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There
can be no assurance that our, or our partners’, clinical trials will in fact demonstrate, to the satisfaction of the FDA
and others, that our product candidates are sufficiently safe or effective. The FDA or we may also restrict or suspend our clinical
trials at any time if it is believed that subjects participating in the trials are being exposed to unacceptable health risks.
Clinical
trials for product candidates such as ours are often conducted with patients who have more advanced forms of a particular condition
or other unrelated conditions. For example, in clinical trials for our product candidate RGN-137, we have studied patients who
are not only suffering from chronic epidermal wounds but who are also older and much more likely to have other serious adverse
conditions. During the course of treatment with our product candidates, patients could die or suffer other adverse events for
reasons that may or may not be related to the drug candidate being tested. Further, and as a consequence that all of our drug
candidates are based on Tß4, crossover risk exists such that a patient in one trial may be adversely impacted by one drug
candidate, and that adverse event may have implications for our other trials and other drug candidates. However, even if unrelated
to our product candidates, such adverse events can nevertheless negatively impact our clinical trials, and our business prospects
would suffer.
These
factors, many of which may be outside of our control, may have a negative impact on our business by making it difficult to advance
product candidates or by reducing or eliminating their potential or perceived value. As a consequence, we may need to perform
more or larger clinical trials than planned. Further, if we are forced to contribute greater financial and clinical resources
to a study, valuable resources will be diverted from other areas of our business. If we fail to complete or if we experience material
delays in completing our clinical trials as currently planned, or we otherwise fail to commence or complete, or experience delays
in, any of our other present or planned clinical trials, including as a result of the actions of third parties upon which we rely
for these functions, our ability to conduct our business as currently planned could materially suffer.
We
may not successfully establish and maintain development and testing relationships with third-party service providers and collaborators,
which could adversely affect our ability to develop our product candidates.
We
have only limited resources, experience with and capacity to conduct requisite testing and clinical trials of our drug candidates.
As a result, we rely and expect to continue to rely on third-party service providers and collaborators, including corporate partners,
licensors and contract research organizations, or CROs, to perform a number of activities relating to the development of our drug
candidates, including the design and conduct of clinical trials, and potentially the obtaining of regulatory approvals. For example,
we currently rely on several third-party contractors to manufacture and formulate Tß4 into the product candidates used in
our clinical trials, develop assays to assess Tß4’s effectiveness in complex biological systems, recruit clinical
investigators and sites to participate in our trials, manage the clinical trial process and collect, evaluate and report clinical
results.
We
may not be able to maintain or expand our current arrangements with these third parties or maintain such relationships on favorable
terms. Our agreements with these third parties may also contain provisions that restrict our ability to develop and test our product
candidates or that give third parties rights to control aspects of our product development and clinical programs. In addition,
conflicts may arise with our collaborators, such as conflicts concerning the interpretation of clinical data, the achievement
of milestones, the interpretation of financial provisions or the ownership of intellectual property developed during the collaboration.
If any conflicts arise with our existing or future collaborators, they may act in their self-interest, which may be adverse to
our best interests. Any failure to maintain our collaborative agreements and any conflicts with our collaborators could delay
or prevent us from developing our product candidates. We and our collaborators may fail to develop products covered by our present
and future collaborations if, among other things:
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we
or our partners do not achieve our objectives under our collaboration agreements;
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we
or our partners are unable to obtain patent protection for the products or proprietary
technologies we develop in our partnerships;
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we
are unable to manage multiple simultaneous product development partnerships;
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our
partners become competitors of ours or enter into agreements with our competitors;
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we
or our partners encounter regulatory hurdles that prevent commercialization of our product
candidates; or
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we
develop products and processes or enter into additional partnerships that conflict with
the business objectives of our other partners.
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We
also have less control over the timing and other aspects of our clinical trials than if we conducted the monitoring and supervision
entirely on our own. Third parties may not perform their responsibilities for our clinical trials on our anticipated schedule
or consistent with a clinical trial protocol or applicable regulations. We, and our partners, also rely on clinical research organizations
to perform much of our data management and analysis. They may not provide these services as required or in a timely manner. If
any of these parties do not meet deadlines or follow proper procedures, including procedures required by law, the preclinical
studies and clinical trials may take longer than expected, may be delayed or may be terminated, which would have a materially
negative impact on our product development efforts. If we were forced to find a replacement entity to perform any of our preclinical
studies or clinical trials, we may not be able to find a suitable entity on favorable terms or at all. Even if we were able to
find a replacement, resulting delays in the tests or trials may result in significant additional expenditures and delays in obtaining
regulatory approval for drug candidates, which could have a material adverse impact on our results of operations and business
prospects.
GtreeBNT
Co., Ltd. has limited drug development experience.
We
are a party to several license agreements and a Joint Venture with GtreeBNT. Historically, GtreeBNT’s business focus has
been in the IT software industry in Korea with strong IP positions addressing specific software tools and apps such as optimized
multimedia software for smart phones. GtreeBNT made a strategic decision in November 2013 to expand into the biopharmaceutical
business through selected strategic alliances with biopharmaceutical companies in the U.S. and EU. The collaboration with RegeneRx
is the first strategic investment in this initiative. While GtreeBNT has hired executives and staff with significant pharmaceutical
experience, the company has no internal drug development experience. As a result, GtreeBNT may face more and different challenges
in the development of these product candidates than would more established pharmaceutical companies.
GtreeBNT
Co., Ltd. has limited financial resources.
GtreeBNT
has informed us that they have limited financial resources. They have to continuously raise capital to fund research, development,
clinical trials, and operations. Therefore, their ability to finance each of these areas is subject to its ability to secured
adequate capital. While GtreeBNT has been able to finance each of these areas, to date, there is no assurance that they will be
able to do so in the future. If GtreeBNT is unable to secure necessary financing to fund clinical trials or operations, it could
have a material adverse impact on RGN-137 and RGN-259 and RegeneRx’s ability to continue funding operations while these
products are under development.
We
are subject to intense competition from companies with greater resources and more mature products, which may result in our competitors
developing or commercializing products before or more successfully than we do.
We
are engaged in a business that is highly competitive. Research and development activities for the development of drugs to treat
indications within our focus are being sponsored or conducted by private and public research institutions and by major pharmaceutical
companies located in the United States and a number of foreign countries. Most of these companies and institutions have financial
and human resources that are substantially greater than our own and they have extensive experience in conducting research and
development activities and clinical trials and in obtaining the regulatory approvals necessary to market pharmaceutical products
that we do not have. As a result, they may develop competing products more rapidly that are safer, more effective, or have fewer
side effects, or are less expensive, or they may develop and commercialize products that render our product candidates non-competitive
or obsolete.
With
respect to our product candidate RGN-259, there are also numerous ophthalmic companies developing drugs for corneal wound healing
and other front-of-the-eye diseases and injuries, including dry eye syndrome. Amniotic membranes have been successfully used to
treat corneal wounds in certain cases, as have topical steroids and antibacterial agents. Most specialty ophthalmic companies
have a number of products on the market that could compete with RGN-259. There are numerous antibiotics to treat eye infections
to promote corneal wound healing and many eye lubrication products that are soothing to the eye and help eye healing, many of
which are sold without prescriptions. Companies also market steroids to treat certain conditions within our area of interest.
Allergan, Inc. markets Restasis™, Ophthalmic Emulsion, which was the only commercially available and FDA-approved eye drop
to treat dry eye. Shire PLC recently received FDA approval to market Xiidra™ for the treatment of dry eye and has launched
the product in the U.S. Restasis, and other products, have been approved for marketing in certain other countries where we have
licensed RGN-259.
We
have initially targeted our product candidate RGN-352 for cardiovascular indications. Most large pharmaceutical companies and
many smaller biomedical companies are vigorously pursuing the development of therapeutics to treat patients after heart attacks
and for other cardiovascular indications.
With
respect to our product candidate RGN-137 for wound healing, Johnson & Johnson has previously marketed Regranex™ for
this purpose in patients with diabetic foot ulcers. Other companies, such as Novartis, are developing and marketing artificial
skins, which we believe could also compete with RGN-137. Other companies are developing genetic therapies to treat wound healing
of the skin and internal organs. Wound healing is a large and highly fragmented marketplace attracting many companies, large and
small, to develop products for treating acute and chronic wounds, including, for example, honey-based ointments, hyperbaric oxygen
therapy, and low frequency cavitational ultrasound.
We
are also interested in developing potential cosmeceutical products, which are loosely defined as products that bridge the gap
between cosmetics and pharmaceuticals, for example, by improving skin texture and reducing the appearance of aging. This industry
is intensely competitive, with potential competitors ranging from large multinational companies to very small specialty companies.
New cosmeceutical products often have a short product life and are frequently replaced with newer products developed to address
the latest trends in appearance and fashion. We may not be able to adapt to changes in the industry as quickly as larger and more
experienced cosmeceutical companies. Further, larger cosmetics companies have the financial and marketing resources to effectively
compete with smaller companies like us in order to sell products aimed at larger markets.
Even
if approved for marketing, our technologies and product candidates are unproven and they may fail to gain market acceptance.
Our
product candidates, all of which are based on the molecule Tß4, are new and unproven and there is no guarantee that health
care providers or patients will be interested in our product candidates, even if they are approved for use. If any of our product
candidates are approved by the FDA, our success will depend in part on our ability to demonstrate sufficient clinical benefits,
reliability, safety, and cost effectiveness of our, or our partners’, product candidates relative to other approaches, as
well as on our ability to continue to develop our product candidates to respond to competitive and technological changes. If the
market does not accept our product candidates, when and if we are able to commercialize them, then we may never become profitable.
Factors that could delay, inhibit or prevent market acceptance of our product candidates may include:
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the
timing and receipt of marketing approvals;
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the
safety and efficacy of the products;
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the
emergence of equivalent or superior products;
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the
cost-effectiveness of the products; and
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It
is difficult to predict the future growth of our business, if any, and the size of the market for our product candidates because
the markets are continually evolving. There can be no assurance that our product candidates will prove superior to products that
may currently be available or may become available in the future or that our research and development activities will result in
any commercially profitable products.
We
have no marketing experience, sales force or distribution capabilities. If our product candidates are approved, and we are unable
to recruit key personnel to perform these functions, we may not be able to commercialize them successfully.
Although
we do not currently have any marketable products, our ability to produce revenues ultimately depends on our, or our partners’,
ability to sell our product candidates if and when they are approved by the FDA and other regulatory authorities. We currently
have no experience in marketing or selling pharmaceutical products, and we do not have a marketing and sales staff or distribution
capabilities. Developing a marketing and sales force is also time-consuming and could delay the launch of new products or expansion
of existing product sales. In addition, we will compete with many companies that currently have extensive and well-funded marketing
and sales operations. If we fail to establish successful marketing and sales capabilities or fail to enter into successful marketing
arrangements with third parties, our ability to generate revenues will suffer.
If
we enter markets outside the United States our business will be subject to political, economic, legal and social risks in those
markets, which could adversely affect our business.
There
are significant regulatory and legal barriers to entering markets outside the United States that must be overcome if we, or our
partners, seek regulatory approval to market our product candidates in countries other than the United States. We would be subject
to the burden of complying with a wide variety of national and local laws, including multiple and possibly overlapping and conflicting
laws. We also may experience difficulties adapting to new cultures, business customs and legal systems. Any sales and operations
outside the United States would be subject to political, economic and social uncertainties including, among others:
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changes
and limits in import and export controls;
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increases
in custom duties and tariffs;
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changes
in currency exchange rates;
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economic
and political instability;
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changes
in government regulations and laws;
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absence
in some jurisdictions of effective laws to protect our intellectual property rights;
and
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currency
transfer and other restrictions and regulations that may limit our ability to sell certain
product candidates or repatriate profits to the United States.
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Any
changes related to these and other factors could adversely affect our business if and to the extent we enter markets outside the
United States. Additionally, we have entered into license agreements with Lee’s Pharmaceutical Limited and GtreeBNT Co,
Ltd. for the development of certain of our product candidates in international markets. As a result, these development activities
will be subject to compliance in all respects with local laws and regulations and may be subject to many of the risks described
above.
Governmental and third-party payors
may subject any product candidates we develop to sales and pharmaceutical pricing controls that could limit our product revenues
and delay profitability.
The
successful commercialization of our product candidates, if they are approved by the FDA, will likely depend on our ability to
obtain reimbursement for the cost of the product and treatment. Government authorities, private health insurers and other organizations,
such as health maintenance organizations, are increasingly seeking to lower the prices charged for medical products and services.
Also, the trend toward managed health care in the United States, the growth of healthcare maintenance organizations, and recently
enacted legislation reforming healthcare and proposals to reform government insurance programs could have a significant influence
on the purchase of healthcare services and products, resulting in lower prices and reducing demand for our product candidates.
The cost containment measures that healthcare providers are instituting, and any healthcare reform could reduce our ability to
sell our product candidates and may have a material adverse effect on our operations. We cannot assure you that reimbursement
in the United States or foreign countries will be available for any of our product candidates, and that any reimbursement granted
will be maintained, or that limits on reimbursement available from third-party payors will not reduce the demand for, or the price
of, our product candidates. The lack or inadequacy of third-party reimbursements for our product candidates would decrease the
potential profitability of our operations. We cannot forecast what additional legislation or regulation relating to the healthcare
industry or third-party coverage and reimbursement may be enacted in the future, or what effect the legislation or regulation
would have on our business.
We have no manufacturing or formulation
capabilities and are dependent upon third-party suppliers to provide us with our product candidates. If these suppliers do not
manufacture our product candidates in sufficient quantities, at acceptable quality levels and at acceptable cost, or if we are
unable to identify suitable replacement suppliers if needed, our clinical development efforts could be delayed, prevented or impaired.
We
do not own or operate manufacturing facilities and have little experience in manufacturing pharmaceutical products. We currently
rely, and expect to continue to rely, primarily on peptide manufacturers to supply us with Tß4 for further formulation into
our product candidates. We have historically engaged three separate smaller drug formulation contractors for the formulation of
clinical grade product candidates, one for each of our three product candidates in clinical development, although, as described
in this report, the contractor we engaged to formulate and vial RGN-352 has filed for bankruptcy and closed its manufacturing
facility, and our clinical trial involving RGN-352 has been placed on clinical hold. We currently do not have an alternative source
of supply for either Tß4 or the individual drug candidates. If these suppliers, together or individually, are not able to
supply us with either Tß4 or individual product candidates on a timely basis, in sufficient quantities, at acceptable levels
of quality and at a competitive price, or if we are unable to identify a replacement manufacturer to perform these functions on
acceptable terms as needed, our development programs could be seriously jeopardized.
The
clinical hold on our RGN-352 trial will require us to have new material manufactured by a cGMP-compliant manufacturer in the event
that we seek to resume this trial. Significant preparatory time and procedures will be required before any new manufacturer would
be able to manufacture RGN-352 for the AMI trial, due to the time required for revalidation of processes and assays related to
such production that were already in place with the original manufacturer. Since we are unable to estimate the length of time
that the trial will be on clinical hold, we have elected to cease activities on this trial until the FDA clinical hold is resolved
and the requisite funding might be secured.
Other
risks of relying solely on single suppliers for each of our product candidates include:
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the
possibility that our other manufacturers, and any new manufacturer that we, or our partners,
may identify for RGN-352, may not be able to ensure quality and compliance with regulations
relating to the manufacture of pharmaceuticals;
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·
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their
manufacturing capacity may not be sufficient or available to produce the required quantities
of our product candidates based on our planned clinical development schedule, if at all;
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·
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they
may not have access to the capital necessary to expand their manufacturing facilities
in response to our needs;
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commissioning
replacement suppliers would be difficult and time-consuming;
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individual
suppliers may have used substantial proprietary know-how relating to the manufacture
of our product candidates and, in the event we must find a replacement or supplemental
supplier, our ability to transfer this know-how to the new supplier could be an expensive
and/or time-consuming process;
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an
individual supplier may experience events, such as a fire or natural disaster, that force
it to stop or curtail production for an extended period;
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an
individual supplier could encounter significant increases in labor, capital or other
costs that would make it difficult for them to produce our products cost-effectively;
or
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·
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an
individual supplier may not be able to obtain the raw materials or validated drug containers
in sufficient quantities, at acceptable costs or in sufficient time to complete the manufacture,
formulation and delivery of our product candidates.
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Our suppliers may use hazardous
and biological materials in their businesses. Any claims relating to improper handling, storage or disposal of these materials
could be time-consuming and costly to us, and we are not insured against such claims.
Our
product candidates and processes involve the controlled storage, use and disposal by our suppliers of certain hazardous and biological
materials and waste products. We and our suppliers and other collaborators are subject to federal, state and local regulations
governing the use, manufacture, storage, handling and disposal of materials and waste products. Even if we and these suppliers
and collaborators comply with the standards prescribed by law and regulation, the risk of accidental contamination or injury from
hazardous materials cannot be completely eliminated. In the event of an accident, we could be held liable for any damages that
result, and we do not carry insurance for this type of claim. We may also incur significant costs to comply with current or future
environmental laws and regulations.
We face the risk of product liability
claims, which could adversely affect our business and financial condition.
We,
or our partners, may be subject to product liability claims as a result of our testing, manufacturing, and marketing of drugs.
In addition, the use of our product candidates, when and if developed and sold, will expose us to the risk of product liability
claims. Product liability may result from harm to patients using our product candidates, such as a complication that was either
not communicated as a potential side effect or was more extreme than anticipated. We require all patients enrolled in our clinical
trials to sign consents, which explain various risks involved with participating in the trial. However, patient consents provide
only a limited level of protection, and it may be alleged that the consent did not address or did not adequately address a risk
that the patient suffered. Additionally, we will generally be required to indemnify our clinical product manufacturers, clinical
trial centers, medical professionals and other parties conducting related activities in connection with losses they may incur
through their involvement in the clinical trials.
Our
ability to reduce our liability exposure for human clinical trials and commercial sales, if any, of Tß4 is dependent in
part on our ability to obtain sufficient product liability insurance or to collaborate with third parties that have adequate insurance.
Although we intend to obtain and maintain product liability insurance coverage if we gain approval to market any of our product
candidates, we cannot guarantee that product liability insurance will continue to be available to us on acceptable terms, or at
all, or that its coverage will be sufficient to cover all claims against us. A product liability claim, even one without merit
or for which we have substantial coverage, could result in significant legal defense costs, thereby potentially exposing us to
expenses significantly in excess of our revenues, as well as harm to our reputation and distraction of our management.
If
any of our key employees discontinue their services with us, our efforts to develop our business may be delayed.
We
are highly dependent on the principal members of our management team. The loss of our chairman and Chief Scientific Officer, Allan
Goldstein, or chief executive officer, J.J. Finkelstein could prevent or significantly delay the achievement of our goals. We
cannot assure you that Dr. Goldstein or Mr. Finkelstein, or any other key employees or consultants, will not elect to terminate
their employment or consulting arrangements. In addition, we do not maintain a key man life insurance policy with respect to any
of our management personnel. In the future, we anticipate that we will also need to add additional management and other personnel.
Competition for qualified personnel in our industry is intense, and our success will depend in part on our ability to attract
and retain highly skilled personnel. We cannot assure you that our efforts to attract or retain such personnel will be successful.
Mauro
Bove, a member of our Board is a director of Lee’s Pharmaceuticals, a relationship which could give rise to a conflict of
interest for Mr. Bove.
Mauro
Bove is a member of our Board of Directors and currently provides consulting services to Lee’s Pharmaceuticals Group in
Hong Kong. There can be no assurance that we will ever receive any further payments from Lee’s under the current agreement
established between RegeneRx and Lee’s. As a result of Mr. Bove’s relationship with Lee’s, Mr. Bove may have
interests that are different from our other stockholders in connection with this agreement and circumstances that may require
the exercise of the Board’s discretion with respect to Lee’s.
Risks
Related To Our Intellectual Property
We
may not be able to maintain broad patent protection for our product candidates, which could limit the commercial potential of
our product candidates.
Our
success will depend in part on our, or our partners’ ability to obtain, defend and enforce patents, both in the United States
and abroad. We have attempted to create a substantial intellectual property portfolio, submitting patent applications for various
compositions of matter, methods of use and fragments and derivatives of Tß4. As described elsewhere in this report, we currently
do not have adequate financial resources to fund our ongoing business activities beyond the first quarter of 2020 without additional
funding. Thus, we continuously evaluate our issued patents and patent applications and may decide to limit their therapeutic and/or
geographic coverage in an effort to enhance our ability to focus on certain medical conditions and countries within our financial
constraints. As a result, we may not be able to protect our intellectual property rights in indications and/or territories that
we otherwise would, and, therefore, our ability to commercialize Tß4, if at all, could be substantially limited, which could
have a material adverse impact on our future results of operations.
Our
patents may expire before any of our product candidates reach commercialization.
Our
success will depend in part on our, or our partners’ patents to provide market exclusivity for our product candidates. We
have numerous patent and patent applications in the U.S. and abroad, however, some of our patents are reaching the end of their
20-year patent exclusivity and, therefore, may expire prior to developing any marketable products or expire shortly after product
launch, which could negatively affect our commercial success.
If
we, or our partners, are not able to maintain adequate patent protection for our product candidates, we may be unable to prevent
our competitors from using our technology or technology that we license.
Our
success will depend in substantial part on our, or our partners’, abilities to obtain, defend and enforce patents, maintain
trade secrets and operate without infringing upon the proprietary rights of others, both in the United States and abroad. Pursuant
to an exclusive worldwide license from the NIH, we have exclusive rights to use Tß4 in the treatment of non-healing wounds.
While patents covering our use of Tß4 have issued in some countries, we cannot guarantee whether or when corresponding patents
will be issued, or the scope of any patents that may be issued, in other countries. We have attempted to create a substantial
intellectual property portfolio, submitting patent applications for various compositions of matter, methods of use and fragments
and derivatives of Tß4. We have also in-licensed other intellectual property rights from third parties that could be subject
to the same risks as our own patents. If any of these patent applications do not issue, or do not issue in certain countries,
or are not enforceable, the ability to commercialize Tß4 in various medical indications could be substantially limited or
eliminated.
In
addition, the patent positions of the products being developed by us and our collaborators involve complex legal and factual uncertainties.
As a result, we cannot assure you that any patent applications filed by us, or by others under which we have rights, will result
in patents being issued in the United States or foreign countries. In addition, there can be no assurance that any patents will
be issued from any pending or future patent applications of ours or our partners, that the scope of any patent protection will
be sufficient to provide us with competitive advantages, that any patents obtained by us or our partners will be held valid if
subsequently challenged or that others will not claim rights in or ownership of the patents and other proprietary rights we or
our partners may hold. Unauthorized parties may try to copy aspects of our product candidates and technologies or obtain and use
information we consider proprietary. Policing the unauthorized use of our proprietary rights is difficult. We cannot guarantee
that no harm or threat will be made to our or our partners’ intellectual property. In addition, changes in, or different
interpretations of, patent laws in the United States and other countries may also adversely affect the scope of our patent protection
and our competitive situation.
Due
to the significant time lag between the filing of patent applications and the publication of such patents, we cannot be certain
that our licensors were the first to file the patent applications we license or, even if they were the first to file, also were
the first to invent, particularly with regards to patent rights in the United States. In addition, a number of pharmaceutical
and biotechnology companies and research and academic institutions have developed technologies, filed patent applications or received
patents on various technologies that may be related to our product candidates. Some of these technologies, applications or patents
may conflict with our or our licensors’ technologies or patent applications. A conflict could limit the scope of the patents,
if any, that we or our licensors may be able to obtain or result in denial of our or our licensors’ patent applications.
If patents that cover our activities are issued to other companies, we may not be able to develop or obtain alternative technology.
Additionally,
there is certain subject matter that is patentable in the United States but not generally patentable outside of the United States.
Differences in what constitutes patentable subject matter in various countries may limit the protection we can obtain outside
of the United States. For example, methods of treating humans are not patentable in many countries outside of the United States.
These and other issues may prevent us from obtaining patent protection outside of the United States, which would have a material
adverse effect on our business, financial condition and results of operations.
Changes
to U.S. patent laws could materially reduce any value our patent portfolio may have.
The
value of our patents depends in part on their duration. A shorter period of patent protection could lessen the value of our rights
under any patents that may be obtained and may decrease revenues derived from its patents. For example, the U.S. patent laws were
previously amended to change the term of patent protection from 17 years following patent issuance to 20 years from
the earliest effective filing date of the application. Because the time from filing to issuance of biotechnology applications
may be more than three years depending on the subject matter, a 20-year patent term from the filing date may result in substantially
shorter patent protection. Moreover, a divisional patent that is filed after a parent patent, if granted, would begin its term
beginning when the parent patent was initially filed, thus having an impact on the divisional patent’s practical patent
life, Future changes to patent laws could shorten our period of patent exclusivity and may decrease the revenues that we might
derive from the patents and the value of our patent portfolio.
We,
or our partners, may not have adequate protection for our unpatented proprietary information, which could adversely affect our
competitive position.
In
addition to our patents, we, and our partners, also rely on trade secrets, know-how, continuing technological innovations and
licensing opportunities to develop and maintain our competitive position. However, others may independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. To
protect our trade secrets, we may enter into confidentiality agreements with employees, consultants and potential collaborators.
However, we may not have such agreements in place with all such parties and, where we do, these agreements may not provide meaningful
protection of our trade secrets or adequate remedies in the event of unauthorized use or disclosure of such information. Also,
our trade secrets or know-how may become known through other means or be independently discovered by our competitors. Any of these
events could prevent us from developing or commercializing our product candidates.
We
may be subject to claims that we or our employees have wrongfully used or disclosed alleged trade secrets of former employers.
As
is commonplace in the biotechnology industry, we employ now, and may hire in the future, individuals who were previously employed
at other biotechnology or pharmaceutical companies, including competitors or potential competitors. Although there are no claims
currently pending against us, we may be subject to claims that we or certain employees have inadvertently or otherwise used or
disclosed trade secrets or other proprietary information of former employers. Litigation may be necessary to defend against these
claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and would be
a significant distraction to management.
Risks
Related To Our Securities
Our
common stock price is volatile, our stock is highly illiquid, and any investment in our securities could decline substantially
in value.
For
the period from January 1, 2018 through March 15, 2019 the closing price of our common stock has ranged from $0.09 to $0.35,
with an average daily trading volume of approximately 55,000 shares. In light of our small size and limited resources, as well
as the uncertainties and risks that can affect our business and industry, our stock price is expected to continue to be highly
volatile and can be subject to substantial drops, with or even in the absence of news affecting our business. The following factors,
in addition to the other risk factors described in this report, and the potentially low volume of trades in our common stock since
it is not listed on a national securities exchange, may have a significant impact on the market price of our common stock, some
of which are beyond our control:
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results
of pre-clinical studies and clinical trials;
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commercial
success of approved products;
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corporate
partnerships;
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technological
innovations by us or competitors;
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·
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changes
in laws and government regulations both in the U.S. and overseas;
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·
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changes
in key personnel at our company;
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·
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developments
concerning proprietary rights, including patents and litigation matters;
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·
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public
perception relating to the commercial value or safety of any of our product candidates;
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·
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other
issuances of our common stock, or securities convertible into or exercisable for our
common stock, causing dilution;
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·
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anticipated
or unanticipated changes in our financial performance;
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·
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general
trends related to the biopharmaceutical and biotechnological industries; and
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·
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general
conditions in the stock market.
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The
stock market in general has recently experienced relatively large price and volume fluctuations. In particular, the market prices
of securities of smaller biotechnology companies have experienced dramatic fluctuations that often have been unrelated or disproportionate
to the operating results of these companies. Continued market fluctuations could result in extreme volatility in the price of
our common stock, which could cause a decline in its value. You should also be aware that price volatility may be worse if the
trading volume of the common stock remains limited or declines.
Our
principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders.
Our
officers, directors and principal stockholders together control approximately 50% of our outstanding common stock. Included in
this group are previous stockholders of Sigma-Tau and their affiliates, which now have consolidated their holding into Essetifin
S.p.A. which holds outstanding shares representing approximately 27% of our outstanding common stock and GtreeBNT which owns approximately
15.1% of our outstanding common stock. These stockholders also hold options, warrants, convertible promissory notes and stock
purchase rights that provide them with the right to acquire significantly more shares of common stock. Accordingly, if these stockholders
acted together they could control the outcome of all stockholder votes. This concentration of ownership may have the effect of
delaying or preventing a change in control and might adversely affect the market price of our common stock, and therefore may
not be in the best interest of our other stockholders.
If
securities or industry analysts do not publish research or reports or publish unfavorable research about our business, the price
of our common stock and other securities and their trading volume could decline.
The
trading market for our common stock and other securities will depend in part on the research and reports that securities or industry
analysts publish about us or our business. We currently have research coverage by one securities and industry analysts, and from
time to time other independent analysts. If securities or industry analysts do not commence or maintain coverage of us, the trading
price for our common stock and other securities would be negatively affected. In the event one or more of the analysts who covers
us downgrades our securities, the price of our securities would likely decline. If one or more of these analysts ceases to cover
us or fails to publish regular reports on us, interest in the purchase of our securities could decrease, which could cause the
price of our common stock and other securities and their trading volume to decline.
The
exercise of options and warrants, conversion of convertible promissory notes, and other issuances of shares of common stock or
securities convertible into common stock will dilute your interest.
As
of December 31, 2018, there were outstanding options to purchase an aggregate of 9,044,825 shares of our common stock under our
2000, 2010 and 2018 incentive equity plans at exercise prices ranging from $0.14 per share to $0.64 per share and outstanding
warrants to purchase 4,220,594 shares of our common stock at a weighted average exercise price of $0.24 per share. On February
27, 2019 we sold a series of convertible promissory notes that will initially be convertible at $0.12 into 10,833,333 shares and
also issued warrants to purchase 8,125,000 shares with an exercise price of $0.18 per share. In March 2018 we entered into a warrant
reprice and exercise and issuance agreement (the “Reprice Agreement”) with the holders of the warrants issued in June
2016. Under the terms of the Reprice Agreement, in consideration of the holders exercising in full all of the 2016 Offering warrants
the exercise price per share of 5,147,059 warrants was reduced to $0.20 per share. As further consideration, we issued to the
holders of the 2016 Offering warrants 3,860,294 new warrants with an exercise price of $0.2301 per share. Pursuant to the terms
of the Reprice Agreement the exercise of the new warrants has been reduced to $0.125 as a result of the February 2019 convertible
note sale. In addition to the notes, options and warrants described above, we had previously issued five series of convertible
promissory notes of which one remained outstanding. In January 2014, we sold a series of convertible promissory notes, which notes
totaled $55,000 and are initially convertible into 916,667 shares of common stock at a conversion price of $0.06 per share. The
notes matured in January 2019 and, along with the accrued interest were converted into common stock. The exercise of options and
warrants or note conversions at prices below the market price of our common stock could adversely affect the price of shares of
our common stock. Additional dilution may result from the issuance of shares of our capital stock in connection with collaborations
or manufacturing arrangements or in connection with other financing efforts.
Any
issuance of our common stock that is not made solely to then-existing stockholders proportionate to their interests, such as in
the case of a stock dividend or stock split, will result in dilution to each stockholder by reducing his, her or its percentage
ownership of the total outstanding shares. Moreover, if we issue options or warrants to purchase our common stock in the future
and those options or warrants are exercised or we issue restricted stock, stockholders may experience further dilution. Holders
of shares of our common stock have no preemptive rights that entitle them to purchase their pro rata share of any offering of
shares of any class or series.
Our
certificate of incorporation and Delaware law contain provisions that could discourage or prevent a takeover or other change in
control, even if such a transaction would be beneficial to our stockholders, which could affect our stock price adversely and
prevent attempts by our stockholders to replace or remove our current management.
Our
certificate of incorporation provides our Board with the power to issue shares of preferred stock without stockholder approval.
In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. Subject
to specified exceptions, this section provides that a corporation may not engage in any business combination with any interested
stockholder, as defined in that statute, during the three-year period following the time that such stockholder becomes an interested
stockholder. This provision could also have the effect of delaying or preventing a change of control of our company. The foregoing
factors could reduce the price that investors or an acquirer might be willing to pay in the future for shares of our common stock.
We
may become involved in securities class action litigation that could divert management’s attention and harm our business
and our insurance coverage may not be sufficient to cover all costs and damages.
The
stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices
for the common stock of pharmaceutical and biotechnology companies. These broad market fluctuations may cause the market price
of our common stock to decline. In the past, following periods of volatility in the market price of a particular company’s
securities, securities class action litigation has often been brought against that company. If we experience this sort of volatility,
we may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s
attention and resources, which could hurt our business, operating results and financial condition.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Securities.
Our
common stock is quoted on the OTC Bulletin Board under the symbol “RGRX.” Our common stock last traded at $0.17
on March 15, 2019.
The
following table sets forth the high and low closing prices for our common stock, as reported by the OTC Bulletin Board, for the
periods indicated. The quotations reported by the OTC Bulletin Board reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not represent actual transactions.
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2018
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2017
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High
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Low
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High
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Low
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First Quarter
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$
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0.29
|
|
|
$
|
0.20
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|
$
|
0.33
|
|
|
$
|
0.28
|
|
|
Second Quarter
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$
|
0.24
|
|
|
$
|
0.19
|
|
|
$
|
0.30
|
|
|
$
|
0.26
|
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Third Quarter
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$
|
0.22
|
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|
$
|
0.16
|
|
|
$
|
0.34
|
|
|
$
|
0.25
|
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|
Fourth Quarter
|
|
$
|
0.20
|
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|
$
|
0.09
|
|
|
$
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0.37
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|
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$
|
0.15
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|
We
have never declared or paid a cash dividend on our common stock and since all of our funds are committed to clinical research
we do not anticipate that any cash dividends will be paid on our common stock in the foreseeable future.
On
February 27, 2019 we sold a series of convertible promissory notes to accredited investors including Essetifin S.p.A., our largest
stockholder. The sale of the notes will result in gross proceeds to the Company of $1,300,000 over two closings. The first closing
in the amount of $650,000 occurred on February 27
th
and the second closing, also in the amount of $650,000, will occur
within three days of the Company providing notice of the enrollment of the first patent in the ARISE-3 clinical trial in DES sponsored
by ReGenTree. ReGenTree has informed us that they now expect the ARISE-3 clinical trial to occur in the second quarter of 2019. Because the Company does not control the timing of the ARISE-3 clinical trial, we cannot be certain that this timing is correct or that it may not change. The notes contain a $0.12 conversion price and are initially convertible
into 10,833,333 chares off common stock. The purchasers also received a warrant exercisable at $0.18 to purchase additional 8,125,000
shares of common stock.
In
January 2019, at note maturity, the holders of the January 2014 Notes elected to convert the note principal and accrued interest
into shares of common stock. As a result, the Company issued 1,149,016 shares of common stock.
In
September 2018, at note maturity, the holders of the September 2013 Notes elected to convert the note principal and accrued interest
into shares of common stock. As a result, the Company issued 6,706,076 shares of common stock.
In
July 2018, at note maturity, the holders of the July 2013 Notes elected to convert the note principal and accrued interest into
shares of common stock. As a result, the Company issued 2,089,120 shares of common stock.
In
March 2018, at note maturity, the holders of the March 2013 Notes elected to convert the note principal and accrued interest into
shares of common stock. As a result, the Company issued 4,700,520 shares of common stock.
On
March 2, 2018 we entered into a warrant reprice and exercise and issuance agreement with the holders of the warrants issued in
June 2016. Under the terms of the Reprice Agreement, in consideration of the holders exercising in full all of the 2016 Offering
warrants the exercise price per share of 5,147,059 warrants was reduced to $0.20 per share. As further consideration, we issued
to the holders of the 2016 Offering warrants 3,860,294 new warrants with an exercise price of $0.2301 per share. Pursuant to the
terms of the Reprice Agreement the exercise price of the new warrants will be reduced from $0.2301 to $0.125 as a result of the
February 2019 note sale.
In
October 2017, at note maturity, the holders of the 2012 Convertible Notes elected to convert the note principal and accrued interest
into shares of common stock. The note holders also elected to exercise the warrants issued with the 2012 Convertible Notes. As
a result, the Company issued 2,906,944 shares of common stock.
Item 6.
Selected Financial Data.
Not
Applicable.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operation.
You
should read the following discussion and analysis together with our financial statements and the related notes included elsewhere
in this annual report.
Business
Overview
We
are a biopharmaceutical company focused on the development of a novel therapeutic peptide, Thymosin beta 4, or Tß4, for
tissue and organ protection, repair, and regeneration. We have formulated Tß4 into three distinct product candidates in
clinical development:
• RGN-259,
a preservative-free topical eye drop for regeneration of corneal tissues damaged by injury, disease or other pathology;
• RGN-352,
an injectable formulation to treat cardiovascular diseases, central and peripheral nervous system diseases, and other medical
indications that may be treated by systemic administration; and
• RGN-137,
a topical gel for dermal wounds and reduction of scar tissue.
We
are continuing strategic partnership discussions with biotechnology and pharmaceutical companies regarding the further clinical
development of all of our product candidates.
Current
Financial Circumstances
On
February 27, 2019 we sold a series of convertible promissory notes to management, the Board of Directors, and accredited investors,
including Essetifin S.p.A., our largest shareholder. The sale of the notes will result in gross proceeds to the Company of $1,300,000
over two closings. The first closing in the amount of $650,000 occurred on February 27
th
and the second closing, also
in the amount of $650,000, will occur within three days of the Company providing notice of the enrolment of the first patent in
the ARISE-3 clinical trial in DES sponsored by ReGenTree which is anticipated to occur in March 2019. The notes contain a $0.12
conversion price and the purchasers also received a warrant exercisable at $0.18 to purchase additional shares of common stock
equal to 75% of the number of shares into which each note is initially convertible. At present, with the receipt of the sale proceeds
from the first closing coupled with the anticipated proceeds from the second closing, we will have sufficient cash to fund planned
operations through the first quarter of 2020.
On
March 2, 2018, we entered into a warrant reprice and exercise and issuance agreement (the “Reprice Agreement”) with
the holders of the warrants issued in June 2016. Under the terms of the Reprice Agreement, in consideration of the holders exercising
in full all of the 2016 Offering warrants, the exercise price per share of the warrants was reduced to $0.20 per share. In addition,
and as further consideration, we issued to the holders of the 2016 Offering warrants 3,860,294 new warrants with an exercise price
of $0.2301 per share. Pursuant to the terms of the Reprice Agreement the exercise price of the new warrants will be reduced from
$0.2301 to $0.125 as a result of the February 2019 note sale. We continuously monitor our cash use as well as the clinical timelines.
We continue to evaluate options including the licensing of additional rights to commercialize our clinical products as well as
raising capital through the capital markets.
Current
Clinical Status
In
January 2015, we entered into a Joint Venture Agreement with GtreeBNT whereby we created ReGenTree LLC, (“ReGenTree”
or “Joint Venture”, jointly owned by us and GtreeBNT, which will commercialize RGN-259 for treatment of dry eye and
neurotrophic keratopathy, an orphan indication in the United States. We are entitled to royalties as a percentage of net sales
ranging from single digits to low-double digits based on the medical indications approved and whether the Joint Venture commercializes
products directly or through a third party. RegeneRx possesses one of three board seats of ReGenTree and certain major decisions
and transactions within ReGenTree, such as commercialization strategy, mergers, and acquisitions, require RegeneRx’s board
designee’s consent. We currently hold a 38.5% ownership interest in ReGenTree. This ownership interest may be further reduced
to as low as 25% once ReGenTree obtains FDA approval of an NDA for Dry Eye Syndrome in the U.S. In the event ReGenTree is acquired,
or a change of control occurs following achievement of an NDA, RegeneRx shall be entitled to a minimum of 40% of all proceeds
paid or payable and will forgo any future royalties.
To
date ReGenTree has sponsored a Phase 2/3 clinical trial (“ARISE-1”) and Phase 3 clinical trials in patients with
dry eye syndrome (“DES”) (“ARISE-2”) and in patients with neurotrophic keratopathy (“NK”)
(“SEER-1”), all in the U.S. In May 2016, we reported the results of the 317-patient ARISE-1 trial and in October
2017, we reported the results of the ARISE-2 trial. The ARISE-2 study, which was sponsored by ReGenTree and managed by Ora,
Inc., demonstrated a number of statistically significant improvements in both signs and symptoms of dry eye syndrome with
0.1% RGN-259 versus placebo, while showing excellent safety, comfort, and tolerability profiles. The ocular discomfort
symptom showed a statistically significant reduction in the RGN-259-treated group at day 15 as compared to placebo (p=0.0149)
in the change from baseline. For sign, RGN-259 also improved the dry eye patient’s ability to withstand an exacerbated
condition in a patient subgroup with both compromised corneal fluorescein staining and Schirmer’s test at baseline. In
this population, RGN-259 showed superiority over placebo in reducing corneal fluorescein staining in the change from baseline
at days 15 and 29 (p=0.0207 and 0.0254, respectively). RGN-259 confirmed its global effects on dry eye syndrome and fast
onset in multiple sign and symptom efficacies with no safety issues in the ARISE-1 and ARISE-2 studies as well as in the
pooled data, although ARISE-2 was not successful in duplicating the results of ARISE-1 where the study population was limited
and less diversified. ReGenTree is proceeding with its RGN-259 development plan as discussed with the FDA in April 2018. Most
recently, ReGenTree reaffirmed that the manufacturing of the investigational product for ARISE-3 has been completed and the
protocol for the study has been finalized. ReGenTree entered into a management agreement for ARISE-3 with Ora, Inc. and the
study was recently initiated with the first patient anticipated to be enrolled in the second quarter of 2019.
The
NK trial (SEER-1), a smaller study in an orphan population, has enrolled seventeen patients thus far, and has several additional
patients being screened, with a goal of forty-six. ReGenTree has expanded its efforts to accelerate patient enrollment by offering
incentives to each study site based on numbers of enrollees as well as payments to referral sites. In 2018, ReGenTree disclosed
that 7 of 17 patients enrolled SEER-1 have completely healed. To participate in the trial the patients were required to have a
persistent epithelial defect (non-healing corneal wound). While these preliminary observations are encouraging, it should be noted
that the patients and treating physicians remain masked while the trial is on-going, so it is not known whether the healed patients
are in the RGN-259 group, placebo group, or distributed among both. It is not known when this study will be completed.
GtreeBNT
has developed the CMC (chemistry, manufacturing and controls) dossier required for Phase 3 clinical trials and commercialization
in the U.S. and in Korea. This comprehensive and critical effort ensures that final drug product manufacturing, packaging, stability,
purity, reproducibility, etc., meets regulatory guidelines and product specifications. The product of this activity is the current
product format being utilized in the U.S. trials being conducted by ReGenTree and will also be utilized in the planned clinical
activity to be conducted by GtreeBNT under the RGN-259 license agreement for Pan Asia.
In
February 2017, our licensee for RGN-137, GtreeBNT, received permission from the U.S. FDA to sponsor a Phase 3 clinical trial using
RGN-137 to treat patients with epidermolysis bullosa (EB), a genetic disease that causes severe blistering of the skin and internal
organs. In August 2017, the Company amended the License Agreement for RGN-137 held by GtreeBNT. Under the amendment the Territory
was expanded to include Europe, Canada, South Korea, Australia and Japan. GtreeBNT initiated a small open trial in patients with
EB in December 2018 to evaluate RGN-137 in such patients prior to sponsoring a larger Phase 3 trial.
Currently,
we have active partnerships in four major territories: North America, Europe, China and Pan Asia. Our partners have been moving
forward and making progress in each territory. In each case, the cost of development is being borne by our partners with no financial
obligation for RegeneRx. We still have significant clinical assets to develop, primarily RGN-352 (injectable formulation of Tß4
for cardiac and CNS disorders) in the U.S., most of Asia, and Europe; RGN-259 in the EU. In August 2017 we amended the RGN-137
License Agreement with GtreeBNT, expanding the territory to include Europe, Canada, South Korea, Australia and Japan. Regarding
RGN-259, our goal is to wait until satisfactory results are obtained from the current ophthalmic clinical program in the U.S.
before moving into the EU. This should allow us to obtain a higher value for the asset at that time. However, we intend to continue
to develop RGN-352, our injectable systemic product candidate for cardiac and central nervous system indications, either by obtaining
grants to fund a Phase 2a clinical trial in the cardiovascular or central nervous system fields or finding a suitable partner
with the resources and capabilities to develop it as we have with RGN-259.
Financial
Operations Overview
We
have never generated product revenues, and we do not expect to generate product revenues until the FDA approves one of our product
candidates, if ever, and we begin marketing and selling it. We anticipate incurring additional operating losses in the future
as we continue to explore the potential clinical benefits of Tß4-based product candidates over multiple indications. To
fund further development and clinical trials we have entered into a series of strategic partnerships under licensing and joint
venture agreements (see Note 4 of our financial statements) where our partners are responsible for advancing development of our
product candidates with multiple clinical trials.
On
February 27, 2019 we sold a series of convertible promissory notes to management, the Board of Directors, and accredited
investors, including Essetifin S.p.A., our largest shareholder. The sale of the notes will result in gross proceeds to the
Company of $1,300,000 over two closings. The first closing in the amount of $650,000 occurred on February 27
th
and
the second closing, also in the amount of $650,000 will occur within three days of the Company providing notice of the
enrolment of the first patent in the ARISE-3 clinical trial in DES sponsored by ReGenTree. ReGenTree has informed us that
they now expect the ARISE-3 clinical trial to occur in the second quarter of 2019. At present, with the receipt of the sale
proceeds from the first closing coupled with the anticipated proceeds from the second closing, we will have sufficient cash
to fund planned operations through the first quarter of 2020. We will need additional funds to continue operations
significantly beyond the first quarter of 2020 and will require substantial capital if we wish to internally advance
development of our unlicensed programs. Accordingly, we will continue to evaluate opportunities to raise additional capital
and are in the process of exploring various alternatives, including, without limitation, a public or private placement of our
securities, debt financing, corporate collaboration and licensing arrangements, government grants, or the sale of our company
or certain of our intellectual property rights.
Most
of our expenditures to date have been for research and development, or R&D, activities and general and administrative, or
G&A, activities. R&D costs include all of the wholly-allocable costs associated with our various clinical programs passed
through to us by our outsourced vendors. Those costs include manufacturing Tß4 and peptide fragments, formulation of Tß4
into our product candidates, stability studies for both Tß4, and the various formulations, preclinical toxicology, safety
and pharmacokinetic studies, clinical trial management, medical oversight, laboratory evaluations, statistical data analysis,
regulatory compliance, quality assurance and other related activities. R&D includes cash and non-cash compensation, travel
and other miscellaneous costs of our internal staff and our independent contractors who focus primarily on management of R&D
related activities. R&D also includes a proration of our common infrastructure costs for office space and communications.
We expense our R&D costs as they are incurred.
R&D
expenditures are subject to the risks and uncertainties associated with clinical trials and the FDA review and approval process.
As a result, these expenses could exceed our expectations, possibly materially. We are uncertain as to what we will incur in future
research and development costs for our clinical studies, as these amounts are subject to the outcome of current studies, management's
continuing assessment of the economics of each individual research and development project and the internal competition for project
funding.
G&A
costs include outside professional fees for legal, business development, audit and accounting services. G&A also includes
cash and non-cash compensation, travel and other miscellaneous costs of our internal G&A personnel, two in total, who are
wholly dedicated to G&A efforts. G&A also includes a proration of our common infrastructure costs for office space, and
communications. Our G&A expenses also include costs to maintain our intellectual property portfolio. Historically we have
expanded our patent prosecution activities and in some cases, we have filed patent applications for non-critical strategic purposes
intended to prevent others from filing similar patent claims. We continue to closely monitor our patent applications in the United
States, Europe and other countries with the advice of outside legal counsel to determine if they will continue to provide strategic
benefits. In cases where we believe the benefit has been realized or it becomes unnecessary due to the issuance of other patents,
or for other reasons that will not affect the strength of our intellectual property portfolio, we have and will continue to abandon
these patent applications in order to reduce our costs of continued prosecution or maintenance.
Critical
Accounting Policies
We
prepare our financial statements in conformity with accounting principles generally accepted in the United States. Such accounting
principles require that our management make estimates and assumptions that affect the amounts reported in our financial statements
and accompanying notes. Our actual results could differ materially from those estimates. The items in our financial statements
that have required us to make significant estimates and judgments are as follows:
Revenue
Recognition
Subsequent
to the adoption of Accounting Standards Codification Revenue from Contracts with Customers (“ASC 606”) on January
1, 2018
The
Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts
with customers, (ii) identification of distinct performance obligations in the contract, (iii) determination of contract transaction
price, (iv) allocation of contract transaction price to the performance obligations and (v) determination of revenue recognition
based on timing of satisfaction of the performance obligation. The Company recognizes revenues upon the satisfaction of its performance
obligation (upon transfer of control of promised goods or services to our customers) in an amount that reflects the consideration
to which it expects to be entitled to in exchange for those goods or services. Whenever we determine that an arrangement should
be accounted for as a single unit of accounting, we must determine the period over which the performance obligations will be performed,
and revenue will be recognized. Revenue will be recognized using either a relative performance or straight-line method. We recognize
revenue using the relative performance method provided that we can reasonably estimate the level of effort required to complete
our performance obligations under an arrangement and such performance obligations are provided on a best-efforts basis. Revenue
recognized is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned,
as determined using the relative performance method, as of each reporting period.
The
Company’s contracts with customers may at times include multiple promises to transfer products and services. Contracts with
multiple promises are analyzed to determine whether the promises, which may include a license together with performance obligations
such as providing a clinical supply of product and steering committee services, are distinct and should be accounted for as separate
performance obligations or whether they must be accounted for as a single performance obligation. The Company accounts for individual
performance obligations separately if they are distinct. Determining whether products and services are considered distinct performance
obligations may require significant judgment. If we cannot reasonably estimate when our performance obligation either ceases or
becomes inconsequential and perfunctory, then revenue is deferred until we can reasonably estimate when the performance obligation
ceases or becomes inconsequential. Revenue is then recognized over the remaining estimated period of performance.
Whenever
the Company determines that an arrangement should be accounted for as a combined performance obligation, we must determine the
period over which the performance obligation will be performed and when revenue will be recognized. Revenue is recognized using
either a relative performance or straight-line method. We recognize revenue using the relative performance method provided that
the we can reasonably estimate the level of effort required to complete our performance obligation under an arrangement and such
performance obligation is provided on a best-efforts basis. Revenue recognized is limited to the lesser of the cumulative amount
of payments received or the cumulative amount of revenue earned, as determined using the relative performance method, as of each
reporting period.
If
the Company cannot reasonably estimate the level of effort required to complete our performance obligation under an arrangement,
the performance obligation is provided on a best-efforts basis and we can reasonably estimate when the performance obligation
ceases or the remaining obligations become inconsequential and perfunctory, then the total payments under the arrangement, excluding
royalties and payments contingent upon achievement of substantive milestones, would be recognized as revenue on a straight-line
basis over the period we expect to complete our performance obligations. Revenue is limited to the lesser of the cumulative amount
of payments received or the cumulative amount of revenue earned, as determined using the straight-line basis, as of the period
ending date.
If
the Company cannot reasonably estimate when our performance obligation either ceases or becomes inconsequential and perfunctory,
revenue is deferred until we can reasonably estimate when the performance obligation ceases or becomes inconsequential. Revenue
is then recognized over the remaining estimated period of performance.
At
the inception of each arrangement that includes development milestone payments, the Company evaluates the probability of reaching
the milestones and estimates the amount to be included in the transaction price using the most likely amount method. If it is
probable that a significant revenue reversal would not occur in the future, the associated milestone value is included in the
transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals,
are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained
as management is unable to assert that a reversal of revenue would not be possible. The transaction price is then allocated to
each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when
the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates
the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate
of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues
and earnings in the period of adjustment.
Amounts
received prior to satisfying the above revenue recognition criteria are recorded as unearned revenue in our accompanying condensed
balance sheets.
Contract
assets are generated when contractual billing schedules differ from revenue recognition timing. Contract assets represent a conditional
right to consideration for satisfied performance obligations that becomes a billed receivable when the conditions are satisfied.
There were no contract assets as of December 31, 2018.
Contract
liabilities result from arrangements where we have received payment in advance of performance under the contract. Changes in contract
liabilities are generally due to either receipt of additional advance payments or our performance under the contract.
We
have the following amounts recorded for contract liabilities:
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December 31, 2018
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December 31, 2017
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|
|
|
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Unearned revenue
|
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$
|
2,254,848
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$
|
2,124,515
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The
contract liabilities amount disclosed above as of December 31, 2018, is primarily related to revenue being recognized on a straight-line
basis over periods ranging from 23 to 30 years, which, in management’s judgment, is the best measure of progress towards
satisfying the performance obligations and represents the Company’s best estimate of the period of the obligation.
Variable
Interest Entities
We
have determined that the Joint Venture is a “variable interest entity”, since the total equity investment at risk
is not sufficient to permit the Joint Venture to finance its activities without additional subordinated financial support. Further,
because of GtreeBNT’s majority equity stake in the Joint Venture, voting control, control of the board of directors, and
substantive management rights, and given that we do not have the power to direct the Joint Venture’s activities that most
significantly impact its economic performance, we have determined that it is not the primary beneficiary of the Joint Venture
and therefore is not required to consolidate the Joint Venture. We report its equity stake in the Joint Venture using the equity
method of accounting because, while it does not control the Joint Venture, we can exert significant influence over the Joint Ventures
activities by virtue of its board representation.
Because
we are not obligated to fund the Joint Venture, and have not provided any financial support, and have no commitment to provide
financial support in the future to the Joint Venture, the carrying value of its investment in the Joint Venture is zero at both
December 31, 2018 and 2017. As a result, we are not recognizing our share of the Joint Venture’s operating losses and will
not recognize any such losses until the Joint Venture produces net income (as opposed to net losses) and at that point we will
reduce our share of the Joint Venture’s net income by our share of previously suspended net losses. As of December 31, 2018,
because we have not provided any financial support, we have no financial exposure as a result of its variable interest in the
Joint Venture.
Convertible
Notes with Detachable Warrants.
In
accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
470-20,
Debt with Conversion and Other Options
, the proceeds received from convertible notes are allocated to the instruments
based on the relative fair values of the convertible notes without the warrants and of the warrants themselves at the time of
issuance. The portion of the proceeds allocated to the warrants is recognized as additional paid-in capital and a debt discount.
The debt discount related to warrants is accreted into interest expense through maturity of the notes.
Derivative
Financial Instruments.
Derivative
financial instruments consist of financial instruments or other contracts that contain a notional amount and one or more underlying
variables (e.g., interest rate, security price or other variable), which require no initial net investment and permit net settlement.
Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial
instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.
We
do not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, we have
issued financial instruments including warrants that are either (i) not afforded equity classification, (ii) embody risks not
clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. In certain instances, these
instruments are required to be carried as derivative liabilities, at fair value, in our financial statements. In other instances
these instruments are classified as equity instruments in our financial statements.
We
estimate the fair values of its derivative financial instrument using the Black-Scholes option pricing model and in certain instances
have used a custom Monte Carlo model where appropriate as these models embody all of the requisite assumptions (including trading
volatility, estimated terms and risk-free rates) necessary to fair value these instruments. Estimating fair values of derivative
financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over
the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques
are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility.
Since derivative financial instruments are initially and subsequently carried at fair values, our operating results reflect the
volatility in these estimate and assumption changes in each reporting period.
Upon
the adoption of new accounting guidance on January 1, 2018, the embedded conversion features in the Company’s convertible
notes are no longer accounted for as derivative liabilities.
Share-based
payment
We
account for share-based compensation based on the estimated grant date fair value of the award using the Black-Scholes option-pricing
model. The estimated grant date fair value is recognized over the requisite service period.
Determining
the appropriate fair value model and calculating the fair value of share-based payment awards require the input of highly subjective
assumptions, including the expected life of the share-based payment awards and stock price volatility. Since our historical data
is limited, the expected life was determined in accordance with SEC Staff Accounting Bulletin No. 107 guidance for “plain
vanilla” options. Since our historical trading volume is relatively low, we estimated the expected volatility based on monthly
closing prices for a period consistent with the expected life of the option.
The
assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but
these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and
we use different assumptions, our stock-based compensation expense could be materially different in the future. See Notes 2 and
8 to the Financial Statements for a further discussion on stock-based compensation and the relative ranges of our historical,
underlying assumptions.
Results
of Operations
Comparison
of years ended December 31, 2018 and 2017
Revenues
.
For the year ended December 31, 2018, we recorded revenue in the amount of approximately $70,000 versus $57,000 recorded for the
year ended December 31, 2017. The 2018 revenue reflects the amortization over 30 years of the payments we received under the original
joint venture license agreement and the payment we received for the expansion of the territorial rights to include Canada in April
2016. The payments received under the 2017 RGN-137 license amendment were amortized for revenue over 23 years. There were additional
payments received pursuant to the license amendment during 2018 and 2017 which resulted in an increase in revenue recognized.
Expenses
— Research and development
. For the year ended December 31, 2018, our R&D expenditures decreased by $63,000,
or 44%, to $81,000, from approximately $144,000 in 2017. The decrease reflects a further shift of our internal R&D efforts
as our partners assume full responsibility for clinical development and is characterized by decreases in R&D consulting (decrease
of $52,000), stock option expense (decrease of $4,000) and internal allocations and other (decrease of $7,000) versus the prior
year. We expect our R&D expenses will remain at low levels unless we decide to reinitiate internal R&D efforts for our
unpartnered programs.
Expenses
— General and administrative
. For the year ended December 31, 2018, our G&A expenses decreased by approximately
$45,000, or 3%, to $1,312,000 from $1,357,000 in 2017. Decreases are reflected in 2018 expenses for salaries (decrease of $54,000),
insurance (decrease of $13,000), sponsorship (decrease of $10,000), travel (decrease of $12,000) and investor relations (decrease
of $2,000) which were offset by increases in stock option expense (increase of $9,000), non-income based tax expense (increase
of $33,000) and professional fees (increase of $4,000). We believe that our G&A expenses will remain at current levels as
we wait for data from the upcoming clinical trials being conducted by our partners. If we enter into additional partnerships or
other business transactions, including financings, we will incur additional legal and transaction related expenses.
Expenses
-
Provision for income tax
. For the year ended December 31, 2018, our Statement of Operations does not reflect income
tax expense versus $99,000 reflected in the year ended December 31, 2017. The 2017 expense relates to the recording of a deferred
tax credit resulting from the withholding of certain amounts from the initial payment received under the RGN-137 License Agreement
amendment. The withholding is mandated under a United States of America and The Republic of Korea Tax treaty entered into in 1976.
Net
Loss/Income.
Our Statement of Operations reflects a net loss of $1,993,553 for the year ended December 31, 2018 versus net
income of $286,487 for the year ended December 31, 2017. The 2018 net loss reflects inducement expense of $582,904 related to
the new warrant component of the March 2018 warrant reprice and exercise agreement (see Note 8). The 2017 period reflects the
change in the value of the conversion feature related to the derivative liability related to our convertible debt as well as the
reduction of the value of the investor rights associated with the 2016 Offering. The value of this conversion feature was indexed
to the share price of our common stock and decreased as our share price decreased. The share price of our common stock decreased
from $0.32 on December 31, 2016 to $0.17 on December 31, 2017, which resulted in a decrease in the fair value of our convertible
debt derivative component of $1,761,668 which combined with an unrealized gain related to the investor rights associated with
the 2016 Offering which lapsed in the August 2017 in the amount $238,937 and resulted in the recording of a change in fair value
of derivative liabilities of $2,000,605. Losses from operations decreased in 2018 versus 2017, $1,323,369 and $1,444,630, respectively.
Liquidity
and Capital Resources
We
have not commercialized any of our product candidates to date and have incurred significant losses since inception. In
addition, we have primarily financed our operations through the equity or issuance of debt including the sale of a series of
convertible promissory notes through private placements with accredited investors and the March and August 2014 private
placements of common stock with GtreeBNT as well as our entry into the ReGenTree joint venture in early 2015. The report of
our independent registered public accounting firm regarding our financial statements for the year ended December 31, 2018
contains an explanatory paragraph regarding the uncertainty of our ability to continue as a going concern based upon our
history of operating losses and dependence on future financing in order to meet our planned operating activities.
Our
Statement of Operations reflects a net loss of $1,993,553 for the year ended December 31, 2018. We had cash and cash equivalents
of $237,261 at December 31, 2018. On February 27, 2019, we sold a series of convertible promissory notes to management, the Board
of Directors, and accredited investors, including Essetifin S.p.A., our largest shareholder. The sale of the notes will result
in gross proceeds to the Company of $1,300,000 over two closings. The first closing in the amount of $650,000 occurred on February
27, 2019
and the second closing, also in the amount of $650,000 will occur within three days of the Company providing
notice of the enrolment of the first patent in the ARISE-3 clinical trial in DES sponsored by ReGenTree. ReGenTree has informed us that they now expect the ARISE-3 clinical trial to occur in the second quarter of 2019. At present, with the receipt of the sale proceeds from the first closing coupled with the anticipated proceeds
from the second closing, we will have sufficient cash to fund planned operations through the first quarter of 2020.
We
may also receive funds from grants, new partnerships or the raising of additional capital if the market climate warrants. Additionally,
we intend to continue to pursue additional partnering activities, particularly for RGN-352, our injectable systemic product candidate
for cardiac and central nervous system indications. This estimate also does not include receipt of any funds from grants, new
partnerships or the raising of additional capital if the market climate warrants. A sale of common stock and warrants, a convertible
instrument or additional partnering of licensed rights are possible sources of operating capital in the future. Additionally,
we intend to continue to pursue additional partnering activities, particularly for RGN-352, our injectable systemic product candidate
for cardiac and central nervous system indications.
Net
Cash Used in Operating Activities.
Net cash used in operating activities was $888,000 and $663,000 for the years ended December 31,
2018 and 2017, respectively. In 2018, our statement of cash flows reflects a net inflow of $130,000 related to payments received
under license agreements versus $543,000 from the same source in 2017.
Net
Cash Used in Investing Activities.
We did not use any cash for investing activities in 2018 or 2017.
Net
Cash Provided by Financing Activities.
Net cash provided by financing activities totaled $944,000 and $75,000 for the years
ended December 31, 2018 and 2017, respectively. In 2018, the cash provided by financing activities consisted of the proceeds
from the warrant reprice transaction in March 2018 while the 2017 cash provided by financing activities was a result of the exercise
of stock options and warrants.
Future
Funding Requirements
The
expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect
our liquidity and capital resources. Currently, RegeneRx has active partnerships in three major territories: the U.S., China and
Pan Asia. Our partners have been moving forward and making progress in each territory. In each case, the cost of development is
being borne by our partners with no financial obligation for RegeneRx. Patient accrual, treatment, and follow-up for ophthalmic
trials are, in general, relatively fast, as opposed to most other clinical efforts, top line data from the U.S. dry eye trial
was released in October 2017 and data from the NK study in 2019 or possibly later.
We
still have significant clinical assets to develop, primarily RGN-352 (injectable formulation of Tß4 for cardiac and CNS
disorders) in the U.S., Pan Asia, and Europe, and RGN-259 in the EU. Our goal is to wait until the results are obtained from the
current ophthalmic clinical trials before moving into the EU with RGN-259. If successful, this should allow us to obtain a higher
value for the asset at that time. However, we intend to continue to develop RGN-352, either by obtaining grants to fund a Phase
2a clinical trial in the cardiovascular or central nervous system fields or finding a suitable partner with the resources and
capabilities to develop it as we have with RGN-259.
In
addition, the length of time required for clinical trials varies substantially according to the type, complexity, novelty and
intended use of a product candidate. Some of the factors that could impact our liquidity and capital needs include, but are not
limited to:
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the
progress of our clinical trials;
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the
progress of our research activities;
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the
number and scope of our research programs;
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the
progress of our preclinical development activities;
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the
costs involved in preparing, filing, prosecuting, maintaining, enforcing and defending
patent and other intellectual property claims;
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the
costs related to development and manufacture of preclinical, clinical and validation
lots for regulatory purposes and commercialization of drug supply associated with our
product candidates;
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our
ability to enter into corporate collaborations and the terms and success of these collaborations;
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the
costs and timing of regulatory approvals; and
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the
costs of establishing manufacturing, sales and distribution capabilities.
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Moreover,
the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising
during the clinical trial protocol, including, among others, the following:
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the
number of patients that ultimately participate in the trial;
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the
duration of patient follow-up that seems appropriate in view of the results;
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the
number of clinical sites included in the trials; and
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the
length of time required to enroll suitable patient subjects.
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Also,
we test our product candidates in numerous preclinical studies to identify indications for which they may be efficacious. We may
conduct multiple clinical trials to cover a variety of indications for each product candidate. As we obtain results from trials,
we may elect to discontinue clinical trials for certain product candidates or for certain indications in order to focus our resources
on more promising product candidates or indications.
Our
proprietary product candidates have not yet achieved FDA regulatory approval, which is required before we can market them as therapeutic
products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, the FDA must
conclude that our clinical data establish safety and efficacy. Historically, the results from preclinical studies and early clinical
trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown
promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary
regulatory approvals.
In
February 2017, we amended our office lease agreement and the term was extended through July 2020. During the extended term our
rental payments will average approximately $4,000 per month.
Sources
of Liquidity
We
have not commercialized any of our product candidates to date and have primarily financed our operations through the issuance
of common stock and common stock warrants in private and public financings in addition to a series of five convertible debt placements
from October 2012 to January 2014. In June of 2016, we raised $1,520,000 by selling 5,147,059 shares of common stock and warrants
to purchase 5,147,059 shares of common stock to Sabby. On March 2, 2018, we entered into a warrant reprice and exercise and issuance
agreement with Sabby, which, in consideration of the holders exercising in full all of the 2016 Offering warrants the exercise
price per share of the warrants was reduced to $0.20 per share. In addition, and as further consideration, we issued to the holders
of the 2016 Offering warrants 3,860,294 new warrants with an exercise price of $0.2301 per share. Pursuant to the terms of the
Reprice Agreement the exercise price of the new warrants will be reduced from $0.2301 to $0.125 as a result of the March 2019
note sale. We received gross proceeds of approximately $1,000,000 pursuant the exercise and issued 5,147,059 of common stock.
In August 2017, we amended the RGN-137 License Agreement with GtreeBNT in exchange for a series of payments, the last of which
will be received in June 2018. Most recently, on February 27, 2019, we sold a series of convertible promissory notes to accredited
investors including Essetifin S.p.A., our largest shareholder. The sale of the notes will result in gross proceeds to the Company
of $1,300,000 over two closings. The first closing in the amount of $650,000 occurred on February 27
th
and the second
closing, also in the amount of $650,000 will occur within three days of the Company providing notice of the enrolment of the first
patent in the ARISE-3 clinical trial in DES sponsored by ReGenTree. ReGenTree has informed us that they now expect the ARISE-3 clinical trial to occur in the second quarter of 2019. The notes contain
a $0.12 conversion price and are initially convertible into 10,833,333 shares of common stock. The purchasers also received a
warrant exercisable at $0.18 to purchase additional 8,125,000 shares of common stock. At present, with the receipt of the sale
proceeds from the first closing coupled with the anticipated proceeds from the second closing, we will have sufficient cash to
fund planned operations through the first quarter of 2020.
We
continuously monitor our cash use as well as the clinical timelines. We continue to evaluate options including the licensing of
additional rights to commercialize our clinical products as well as raising capital through the capital markets.
We
have various strategic agreements and license agreements with: GtreeBNT, ReGenTree and Lee’s. These license agreements provide
for the opportunity for us to receive milestone payments upon specified commercial events and royalty payments in connection with
any commercial sales of the licensed products in the respective territories. However, there are no assurances that we will be
able to attain any such milestones or generate any such royalty payments under the agreements.
Licensing
Agreements
As
noted above, we have entered into two strategic agreements with GtreeBNT. GtreeBNT licensed the development and commercialization
rights for RGN-259, in Asia (excluding China, Hong Kong, Macau and Taiwan) while also licensing the development and commercialization
rights for RGN-137 in the U.S. In August 2017, the Company amended the License Agreement for RGN-137 held by GtreeBNT. Under the
amendment the Territory was expanded to include Europe, Canada, South Korea, Australia and Japan. In January 2015, we entered
into a joint venture and licensing agreement with GtreeBNT that will commercialize RGN-259 for treatment of dry eye and neurotrophic
keratitis in the United States, as well as any other indications within the field of ophthalmology. The license agreements provide
for the opportunity for us to receive milestone payments upon specified commercial events and royalty payments in connection with
any commercial sales of the licensed products in the respective territories. However, there are no assurances that we will be
able to attain any such milestones or generate any such royalty payments under the agreements.
We
also have entered into a license agreement with Lee’s Pharmaceuticals that provides for the opportunity for us to receive
milestone payments upon specified events and royalty payments in connection with any commercial sales of Tß4-based products
in China, Hong Kong, Macau and Taiwan. However, there are no assurances that we will be able to attain any such milestones or
generate any such royalty payments under the agreement. In February 2019, the License Agreement was amended and assigned by Lee’s
to their affiliate, Zhaoke Ophthalmology Pharmaceutical Limited. There are no economic changes to the License Agreement.
Government
Grants
We
have pursued, and may continue to pursue, government funding for both RGN-259 and RGN-352. We are not currently receiving funding
under a Government Grant.
Other
Financing Sources
Other
potential sources of outside capital include entering into additional strategic business relationships, additional issuances of
equity securities or debt financing or other similar financial instruments. If we raise additional capital through a strategic
business relationship, we may have to give up valuable rights to our intellectual property. If we raise funds by selling additional
shares of our common stock or securities convertible into our common stock, the ownership interest of our existing stockholders
may be significantly diluted. In addition, if additional funds are raised through the issuance of preferred stock or debt securities,
these securities are likely to have rights, preferences and privileges senior to our common stock and may involve significant
fees, interest expense, restrictive covenants and the granting of security interests in our assets.
Our
failure to successfully address liquidity requirements could have a materially negative impact on our business, including the
possibility of surrendering our rights to some technologies or product opportunities, delaying our clinical trials, or ceasing
operations. There can be no assurance that we will be able to obtain additional capital in sufficient amounts, on acceptable terms,
or at all.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements, as such term is defined in Item 303(a)(4) of Regulation S-K.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
Not
applicable.
Item 8.
Financial Statements and Supplementary Data.
The
financial statements required by this item are included beginning on page F-1 of this report.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Controls and Procedures.
We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed, summarized and timely reported as provided in SEC rules
and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer who
currently serves as both our principal executive officer and our principal financial officer, as appropriate, to allow for timely
decisions regarding required disclosure. We periodically review the design and effectiveness of our disclosure controls and procedures,
including compliance with various laws and regulations that apply to our operations. We make modifications to improve the design
and effectiveness of our disclosure controls and procedures and may take other corrective action if our reviews identify a need
for such modifications or actions. In designing and evaluating the disclosure controls and procedures, we recognize that any controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives, and we apply judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition,
the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over
time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures
may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not
be detected.
We
have carried out an evaluation, under the supervision and the participation of our management, including our Chief Executive Officer,
of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e)
and 15d-15(e) under the Exchange Act), as of December 31, 2018 the end of the period covered by this report. Based upon that
evaluation, our Chief Executive Officer, in his capacity as principal executive officer and principal financial officer, concluded
that our disclosure controls and procedures were effective as of December 31, 2018.
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on our financial
statements.
Because
of its inherent limitations, including the possibility of human error and the circumvention or overriding of controls, a system
of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect all misstatements.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation. Further, because of changes in conditions, effectiveness of internal control over financial reporting
may vary over time.
A
significant deficiency is a control deficiency, or combination of control deficiencies, in internal control over financial reporting
that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the
company’s financial reporting. A material weakness is a deficiency, or combination of control deficiencies, in internal
control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s
annual or interim financial statements will not be prevented or detected on a timely basis.
Under
the supervision and with the participation of our management, including our Chief Executive Officer in his capacity as principal
executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework set forth in
Internal Control—Integrated Framework
issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, management has concluded that our internal control
over financial reporting was effective as of December 31, 2018.
This
Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent
registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide
only management’s report in this Annual Report.
Changes
in Internal Control over Financial Reporting
There
were no changes to the Company’s Internal Controls over Financial Reporting in the year ended December 31, 2018.
Item 9B.
Other Information.
None.
PART
III
Item 10.
Directors, Executive Officers and Corporate Governance.
Executive
Officers and Directors
The
following table sets forth as of March 15, 2019, the name, age and position of each person who serves as an executive officer
or director of our company. There are no family relationships among any of our executive officers or directors, with the exception
that Mr. Finkelstein is the first cousin of Dr. Goldstein’s wife.
We
seek to assemble a board that, as a whole, possesses the appropriate balance of professional and industry knowledge, financial
expertise and high-level management experience necessary to oversee and direct our business. To that end, our board intends to
maintain membership of directors who complement and strengthen the skills of other members and who also exhibit integrity, collegiality,
sound business judgment and other qualities that we view as critical to effective functioning of the board. The brief biographies
below include information, as of the date of this report, regarding the specific and particular experience, qualifications, attributes
or skills of each director or nominee that led the board to believe that the director should serve on the board.
|
Name
|
|
Age
|
|
|
Position
|
|
Executive Officers:
|
|
|
|
|
|
|
|
Mr. J.J. Finkelstein
|
|
|
67
|
|
|
President, Chief Executive Officer and Director
|
|
|
|
|
|
|
|
|
|
Directors:
|
|
|
|
|
|
|
|
Dr. Allan L. Goldstein
|
|
|
81
|
|
|
Founder, Chairman of the Board and Chief Scientific Officer
|
|
Mr. R. Don Elsey
|
|
|
65
|
|
|
Director
|
|
Mr. Joseph C. McNay
|
|
|
85
|
|
|
Director
|
|
Mr. Mauro Bove
|
|
|
64
|
|
|
Director
|
Mr. Finkelstein
has served as our President and Chief Executive Officer and a member of our Board of Directors since 2002. Mr. Finkelstein
also served as our Chief Executive Officer from 1984 to 1989 and as the Vice Chairman of our Board of Directors from 1989 to 1991.
Mr. Finkelstein has worked as an executive officer and consultant in the bioscience industry for the past 36 years,
including serving from 1989 to 1996 as chief executive officer of Cryomedical Sciences, Inc., a publicly-traded medical device
company. Mr. Finkelstein has significant experience in developing early-stage companies. He has been responsible for the
regulatory approval and marketing of several medical devices in the U.S. and abroad. Mr. Finkelstein has previously served
on the executive committee of the Board of Directors of the Technology Council of Maryland and MdBio, Inc. and formerly chaired
the MdBio Foundation for six years, all of which are non-profit entities that support bioscience development and education in
the State of Maryland. Mr. Finkelstein received a business degree in finance from the University of Texas. The Board believes
that Mr. Finkelstein’s history and long tenure as our Chief Executive Officer positions him to contribute to the Board his
extensive knowledge of our company and to provide Board continuity. In addition, the Board believes that his experience at prior
companies has provided him with operational and industry expertise, as well as leadership skills that are important to the Board.
Dr. Goldstein
has served as the Chairman of our Board of Directors and our Chief Scientific Officer since he founded our company in 1982.
Dr. Goldstein is Emeritus Professor & former Chairman of the Department of Biochemistry and Molecular Medicine at the
George Washington University School of Medicine and Health Sciences. Dr. Goldstein is a recognized expert in the field of
immunology and protein chemistry, having authored over 450 scientific articles in professional journals. He is also the inventor
on over 25 issued and/or pending patents in biochemistry, immunology, cardiology, cancer and wound healing. Dr. Goldstein
discovered several important compounds, including T
a
1, which is marketed worldwide, and
T
b
4, which is the basis for RegeneRx’s clinical program. Dr. Goldstein served
on the Board of Trustees of the Sabin Vaccine Institute from 2000 to 2012 and on the Board of Directors of the Richard B. and
Lynne V. Cheney Cardiovascular Institute from 2006 to 2012. Dr. Goldstein has also done pioneering work in the area of medical
education, developing distance learning programs for the internet entitled “Frontiers in Medicine,” a medical education
series that Dr. Goldstein developed. The Board believes that Dr. Goldstein’s scientific expertise, industry background
and prior experience as our founder all position him to make an effective contribution to the medical and scientific understanding
of the Board, which the committee believes to be particularly important as we continue our T
b
4
development efforts.
Mr.
Elsey
has served as a member of our Board of Directors since September 2010. In February 2019, Mr. Elsey joined the Board
of Directors of OpGen, Inc. and will serve as the Chairman of the Audit Committee. Mr. Elsey served as CFO of Senseonics, Inc.
a medical device company focused on continuous glucose monitoring from February 2015 until January 2019 when he retired. From
May 2014 until February 2015 Mr. Elsey served as chief financial officer of Regado Biosciences, a public, late-stage clinical
development biopharmaceutical company. From December 2012 to February 2014 Mr. Elsey served as chief financial officer of LifeCell,
Inc., a privately held regenerative medicine company. From June 2005 to December 2012, he served in numerous finance capacities,
most recently as senior vice president and chief financial officer, at Emergent BioSolutions Inc., a publicly held biopharmaceutical
company. He served as the director of finance and administration at IGEN International, Inc., a publicly held biotechnology company,
and its successor BioVeris Corporation, from April 2000 to June 2005. Prior to joining IGEN, Mr. Elsey served as director of finance
at Applera, a genomics and sequencing company, and in several finance positions at International Business Machines, Inc. He received
an M.B.A. in finance and a B.A. in economics from Michigan State University. Mr. Elsey is a certified management accountant. The
Board believes that Mr. Elsey’s experience as chief financial officer of a public company is particularly valuable to our
business in that it positions him to contribute to our board’s and audit committee’s understanding of financial matters.
Mr.
McNay
has served as a member of our Board of Directors since 2002. He is currently Chairman, Chief Investment Officer and
Managing Principal of Essex Investment Management Company, LLC, positions he has held since 1976 when he founded Essex. He has
direct portfolio management responsibilities for a variety of funds and on behalf of private clients. He is also a member of the
firm’s Management Board. Prior to founding Essex, Mr. McNay was Executive Vice President and Director of Endowment Management
& Research Corp. from 1967. Prior to that, Mr. McNay was Vice President and Senior Portfolio Manager at the Massachusetts
Company. Currently he is serving as Trustee of the Dana Farber Cancer Institute, member of the Children’s Hospital Investment
Committee. Mr. McNay served a Trustee for Brigham and Women’s Physicians Organization from 2000 – 2018. He received
his A.B. degree from Yale University and his M.B.A. degree in finance from the Wharton School of the University of Pennsylvania.
The Board believes that Mr. McNay’s extensive financial experience is valuable to our business and also positions him to
contribute to the audit committee’s understanding of financial matters.
Mr.
Bove
has served as a member of our Board of Directors since 2004 and has more than 30 years of business and management experience
within the pharmaceutical industry. Mr. Bove is currently based in Hong Kong and in Europe, serving as
a
consultant
to emerging pharmaceutical companies worldwide. Previously, Mr. Bove
led for more than 20 years the Corporate & Business Development of Sigma-Tau Finanziaria S.p.A., formerly the holding company
of Sigma-Tau Group, a leading international pharmaceutical company (Sigma-Tau Finanziaria S.p.A. - now Essetifin S.p.a. - and
its affiliates are collectively our largest stockholder). Mr. Bove, who resigned this role with Sigma-Tau on March 31, 2014, has
also held a number of senior positions in business, licensing and corporate development within Sigma-Tau Group. Mr. Bove obtained
his law degree at the University of Parma, Italy, in 1980. In 1985, he attended the Academy of American and International Laws
at the International and Comparative Law Center, Dallas, Texas. The Board believes that Mr. Bove’s extensive business and
management experience within the pharmaceutical industry allows him to recognize and advise the Board with respect to recent industry
developments.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a)
of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class
of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock
and other equity securities of our company. Officers, directors and greater than ten percent stockholders are required by SEC
regulation to furnish us with copies of all Section 16(a) forms they file.
To
our knowledge, based solely on a review of the copies of such reports furnished to us and written representations of our directors
and officers that no other reports were required, during the fiscal year ended December 31, 2018, all Section 16(a) filing requirements
applicable to our officers, directors and greater than ten percent beneficial owners were complied with.
Corporate
Code of Conduct and Ethics
We
have adopted a corporate code of conduct and ethics that applies to all of our employees, officers and directors, as well as a
separate code of ethics that applies specifically to our principal executive officer and principal financial officer. The corporate
code of conduct and ethics and the code of ethics for our principal executive and financial officers are available on our corporate
website at www.regenerx.com. If we make any substantive amendments to the corporate code of conduct and ethics or the code of
ethics for our principal executive and financial officers or grant any waivers from a provision of these codes to any executive
officer or director, we will promptly disclose the nature of the amendment or waiver on our website.
Audit
Committee and Audit Committee Financial Expert
We
have a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange
Act. The members of the audit committee are Messrs. McNay and Elsey. Mr. McNay serves as chairman of the audit committee.
Our
board of directors periodically reviews the independence of our audit committee members and has determined that all current members
of our audit committee are independent under NYSE Amex listing standards. Although our common stock is no longer listed on the
NYSE Amex exchange, we have determined the independence of our audit committee members using the NYSE Amex definitions of independence.
Our
board of directors has also determined that each of Mr. McNay and Mr. Elsey qualifies as an audit committee financial
expert, as defined in applicable SEC rules.
Item 11.
Executive Compensation.
Summary
Compensation Table
The
following table shows, for the fiscal years ended December 31, 2018 and 2017, compensation awarded to or paid to, or earned
by, our chief executive officer who was our only named executive officers for fiscal 2018. For purposes of this report, we sometimes
refer to our chief executive officer as our named executive officer.
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
Salary(1)
|
|
|
Bonus
|
|
|
Awards(2)
|
|
|
Compensation(3)
|
|
|
Total
|
|
|
Name and Principal Position
|
|
|
Year
|
|
|
|
($)
|
|
|
|
($)
|
|
|
|
($)
|
|
|
|
($)
|
|
|
|
($)
|
|
|
J.J. Finkelstein, President and
|
|
|
2018
|
|
|
|
102,399
|
|
|
|
—
|
|
|
|
38,809
|
|
|
|
3,360
|
|
|
|
144,568
|
|
|
Chief Executive Officer
|
|
|
2017
|
|
|
|
150,000
|
|
|
|
—
|
|
|
|
30,973
|
|
|
|
3,360
|
|
|
|
184.333
|
|
|
|
(1)
|
Mr. Finkelstein reduced his 2018 salary from $150,000 to $125,000 in March 2018. Additionally,
he forwent his October, November and December 2018 salary due to the limited cash held by RegeneRx.
|
|
|
(2)
|
The 2018 & 2017 amounts reflect the aggregate total grant
date fair values (computed in accordance with FASB ASC Topic 718 or ASC Topic 505)
|
|
|
(3)
|
The
2018 & 2017 amount reflects payment of life insurance premiums for Mr. Finkelstein in the amount of $3,360
|
Employment
Agreements; Potential Payments Upon Termination or Change in Control
Employment
Agreement with Mr. Finkelstein
We
entered into an employment agreement with Mr. Finkelstein on April 16, 2014 for him to serve as our president and chief executive
officer. Mr. Finkelstein’s employment agreement has an initial three-year term, which is automatically renewed for
additional one-year periods unless either we or Mr. Finkelstein elect not to renew it. Mr. Finkelstein’s annual
base salary was $125,000, which was increased to $150,000 on January 1, 2015 and subsequently reduced back to $125,000 in March
2018. Mr. Finkelstein’s salary may not be adjusted downward without his written consent, except in a circumstance which
is part of a general reduction or other concessionary arrangement affecting all employees or affecting senior executive officers.
Effective January 1, 2019, Mr. Finkelstein suggested and consented that his salary be reduced to $80,000 annually. Mr. Finkelstein
is also eligible to receive an annual bonus in an amount established by the Board and is entitled to participate in and receive
all standard employee benefits and to participate in all of our applicable incentive plans, including stock option, stock, bonus,
savings and retirement plans. We also provide him with $1 million in life insurance.
Mr. Finkelstein
is eligible to receive options to purchase common stock under our equity incentive plans. The decision to grant any such options
and the terms of such options are within the discretion of our Board or the compensation committee thereof. All vested options
are exercisable for a period of time following any termination of Mr. Finkelstein’s employment as may be set forth
in the applicable benefit plan or in any option agreement between Mr. Finkelstein and us.
In
the event that Mr. Finkelstein’s employment is terminated by us without “cause” or by Mr. Finkelstein for
“good reason,” each as defined in his employment agreement, subject to Mr. Finkelstein’s entering into
and not revoking a release of claims in a form acceptable to us, Mr. Finkelstein will be entitled to receive (i) a lump sum
payment in an amount equal to one-half of his then annual base salary if within the first anniversary date of this Agreement;
or (ii) a lump sum payment in an amount equal to three-fourths of his then annual base salary if within the first anniversary
date and second anniversary date of this Agreement; or (iii) a lump sum payment in an amount equal to his then annual base salary
if any time after the second anniversary date of this Agreement, less all federal and state withholdings. In the event of a “change
in control,” as defined in his employment agreement and Mr. Finkelstein is involuntarily terminated within 12 months
after a change in control event or within 12 months after a change in control event he resigns his employment for “good
reason”, then the Company shall (i) pay Mr. Finkelstein, in a lump sum cash payment, an amount equal to his annual base
salary in effect on the date of his termination from employment, less any applicable federal and state taxes and withholdings.
In addition, in each instance Mr. Finkelstein would also be eligible to receive (i) any earned bonus and accrued vacation
pay, and (ii) to the extent that he is eligible for and participates in a Company sponsored health insurance plan the Company
shall pay or reimburse Executive for the amount of any insurance premiums for a twelve-month period, but these payments shall
be limited to the amount of the premiums being paid by the Company for Executive’s coverage or the amount being reimbursed
for insurance premiums immediately prior to the date of his termination from employment.
In
addition, if Mr. Finkelstein’s employment is terminated without “cause,” or if there is a “change
in control” event, in each case as defined in either the applicable benefit plan or in Mr. Finkelstein’s employment
agreement, then the unvested portion of Mr. Finkelstein’s outstanding options would accelerate in full.
Outstanding
Equity Awards at December 31, 2018
The
following table shows certain information regarding outstanding equity awards at December 31, 2018 for the named executive officer,
all of which were stock options granted under our Amended and Restated 2000 Stock Option and Incentive Plan, our 2010 Equity Incentive
Plan or our 2018 Equity Incentive Plan
.
|
|
|
Number of Shares
Underlying
Unexercised Options
(#)
|
|
|
Number of Shares
Underlying Unexercised
Options
(#)
|
|
|
Option Exercise
Price
|
|
|
Option
|
|
|
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
($)
|
|
|
Expiration Date
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Finkelstein
|
|
|
114,748
|
|
|
|
—
|
|
|
|
0.57
|
|
|
|
4/10/2019
|
|
|
|
|
|
|
|
150,000
|
|
|
|
50,000
|
|
|
|
0.64
|
|
|
|
3/17/2023
|
|
|
(1)
|
|
|
|
|
62,500
|
|
|
|
187,500
|
|
|
|
0.21
|
|
|
|
7/16/2028
|
|
|
(2)
|
|
|
|
|
500,000
|
|
|
|
—
|
|
|
|
0.14
|
|
|
|
1/24/2019
|
|
|
|
|
|
|
|
35,000
|
|
|
|
—
|
|
|
|
0.16
|
|
|
|
4/4/2019
|
|
|
|
|
|
|
|
500,000
|
|
|
|
—
|
|
|
|
0.21
|
|
|
|
3/25/2021
|
|
|
|
|
|
|
|
500,000
|
|
|
|
—
|
|
|
|
0.36
|
|
|
|
6/30/2022
|
|
|
|
|
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
0.28
|
|
|
|
9/1/2027
|
|
|
(2)
|
|
|
(1)
|
These options
vest in equal installments upon grant and on the first three anniversaries of the grant
date. In each case these options were granted seven years prior to the listed expiration
dates.
|
|
|
(2)
|
These options
vest in equal installments upon grant and on the first three anniversaries of the grant
date. In each case these options were granted ten years prior to the listed expiration
dates.
|
Post-Employment Compensation
We
do not maintain any plans providing for payment or other benefits at, following, or in connection with retirement other than a
401(k) plan which was available to all employees through 2011. The Company did not make any plan contributions in 2018 or 2017.
In addition, we do not maintain any non-qualified deferred compensation plans.
Director
Compensation
The
following table sets forth certain information for the fiscal year ended December 31, 2018 with respect to the compensation
of our directors. Mr. Finkelstein’s compensation is disclosed in the Summary Compensation Table above, and he does
not receive any additional compensation for his service as a director. Dr. Goldstein is an employee of our company and his
compensation as an employee is set forth in the table below. He does not receive any additional compensation for his service as
a director.
The
Company had in effect a non-employee director compensation policy which was suspended in November 2011 by our Board of Directors
elected to help the company preserve capital and consistent with this, certain fees accrued in 2011 were forfeited and no retainer
or meeting fees were paid to non-employee directors in 2018 or 2017.
In
2018, each independent director was granted options to purchase 200,000 shares of common stock at an exercise price of $0.21 per
share, which vests in four segments pursuant to each director’s continued service. In 2017, each independent director was
granted options to purchase 125,000 shares of common stock with an exercise price per share of $0.28. These option grants vests
in four segments pursuant to each director’s continued service. These option grants were the only compensation received
by non-employee directors in 2018 and 2017.
We
also reimburse directors for expenses incurred in attending meetings of the board and other events attended on our behalf and
at our request.
Director Compensation for Fiscal 2018
|
|
|
Fees Earned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or Paid
|
|
|
Option
|
|
|
All Other
|
|
|
|
|
|
|
|
in Cash
|
|
|
Awards
|
|
|
Compensation
|
|
|
Total
|
|
|
Name
|
|
($)(1)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allan Goldstein, Ph.D.
|
|
—
|
|
|
38,809
|
|
|
90,000
|
(2)
|
|
128,809
|
|
|
R. Don Elsey
|
|
|
—
|
|
|
|
31,047
|
|
|
|
—
|
|
|
|
31,047
|
|
|
Joseph McNay
|
|
|
—
|
|
|
|
31,047
|
|
|
|
—
|
|
|
|
31,047
|
|
|
Mauro Bove
|
|
|
—
|
|
|
|
31,047
|
|
|
|
—
|
|
|
|
31,047
|
|
|
|
(1)
|
Options held by
each Board member as of December 31, 2018, are as follows:
|
|
Allan Goldstein, Ph.D.
|
|
|
1,706,942
|
|
|
R. Don Elsey
|
|
|
795,000
|
|
|
Joseph McNay
|
|
|
803,024
|
|
|
Mauro Bove
|
|
|
832,155
|
|
|
|
(2)
|
In addition to
being Chairman of our Board of Directors, Dr. Goldstein also serves as our Chief
Science Officer. In this capacity, Dr. Goldstein received cash compensation of $90,000
in 2018. In 2018 Dr. Goldstein was also granted options to purchase 250,000 shares of
common stock.
|
We entered into an employment
agreement with Dr. Goldstein on April 16, 2014 for him to serve as our Chief Science Officer. Dr. Goldstein’s employment
agreement had an initial one-year term, which has been and will be automatically renewed for additional one-year periods unless
either we or Mr. Goldstein elect not to renew it. Dr. Goldstein’s annual base salary was $75,000 and was increased
to $90,000 on January 1, 2015. Dr. Goldstein’s salary may not be adjusted downward without his written consent, except in
a circumstance which is part of a general reduction or other concessionary arrangement affecting all employees or affecting senior
executive officers. Dr. Goldstein is also eligible to receive an annual bonus in an amount established by the Board and is
entitled to participate in and receive all standard employee benefits and to participate in all of our applicable incentive plans,
including stock option, stock, bonus, savings and retirement plans.
Dr. Goldstein is eligible
to receive options to purchase common stock under our equity incentive plans. The decision to grant any such options and the terms
of such options are within the discretion of our Board or the compensation committee thereof. All vested options are exercisable
for a period of time following any termination of Dr. Goldstein’s employment as may be set forth in the applicable
benefit plan or in any option agreement between Dr. Goldstein and us.
Item 12.
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The
following table sets forth certain information regarding the ownership of our common stock as of March 15, 2019 by (i) each
director; (ii) each named executive officer; (iii) all currently serving executive officers and directors as a group;
and (iv) all those known by us to be beneficial owners of more than five percent of our common stock. The address for all
directors and executive officers is c/o RegeneRx Biopharmaceuticals, Inc., 15245 Shady Grove Road, Suite 470, Rockville,
MD 20850.
|
|
|
Beneficial Ownership
(1)
|
|
|
Beneficial Owner
|
|
Number of Shares
|
|
|
Percent of Total
|
|
|
|
|
|
|
|
|
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
|
Entities affiliated previously affiliated
with Essetifin S.p.A., Via Sudafrica, 20, Rome, Italy 00144
|
|
|
39,155,747
|
(2)
|
|
|
30.2
|
%
|
GtreeBNT Co., Ltd.
22nd FL, Parkview Tower,
248 Jungjail-ro, Bundang-gu, Seongnam-si, Gyeonggi-do 463-863, Republic of Korea
|
|
|
19,583,333
|
(3)
|
|
|
15.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
|
J.J. Finkelstein
|
|
|
3,229,406
|
(4)
|
|
|
2.5
|
%
|
|
Allan L. Goldstein
|
|
|
3,106,068
|
(5)
|
|
|
2.4
|
%
|
|
Joseph C. McNay
|
|
|
7,218,813
|
(6)
|
|
|
5.6
|
%
|
|
Mauro Bove
|
|
|
661,322
|
(7)
|
|
|
*
|
|
|
R. Don Elsey
|
|
|
707,789
|
(8)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers
as a group (5 persons)
|
|
|
14,923,398
|
(9)
|
|
|
11.5
|
%
|
|
|
(1)
|
This table is based upon information supplied by officers, directors and principal stockholders.
Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe
that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated
as beneficially owned. Applicable percentages are based on 129,581,494 shares of common stock outstanding on March 15, 2019,
adjusted as required by rules promulgated by the Securities and Exchange Commission (the “SEC”).
|
|
|
(2)
|
Consists of 34,989,080 shares of common stock held of record held by Essetifin S.p.A. (f/k/a
Sigma-Tau Finanziaria, S.p.A.) (“Essetifin”) and 4,166,667 shares of common stock issuable upon conversion of
a convertible promissory note. Paolo Cavazza and members of his family directly and indirectly own 38% of Essetifin. The beneficial
ownership of Essetifin and its affiliates is derived from the Schedule 13D/A filed by Essetifin on March 1, 2019.
|
|
|
|
|
|
|
(3)
|
Consists of 19,583,333 shares of common stock held of record by GtreeBNT which were acquired
in two equity purchases in March 2014 and August 2014. The beneficial ownership of GtreeBNT is derived from its Schedule 13D/A
filed on April 1, 2015.
|
|
|
(4)
|
Consists of 1,637,991 shares of common stock held of record by Mr. Finkelstein, 1,487,248
shares of common stock issuable upon exercise of options and 104,167 shares of common stock issuable upon conversion of a
convertible promissory note, in each case exercisable within 60 days of March 15, 2019.
|
|
|
(5)
|
Consists of 1,940,793 shares of common stock held of record by Dr. Goldstein, 20,833 shares
of common stock issuable upon conversion of a convertible promissory note and 1,144,442 shares of common stock issuable upon
exercise of options, in each case exercisable within 60 days of March 15, 2019.
|
|
|
(6)
|
Consists of 6,524,122 shares of common stock held of record by Mr. McNay, 104,167 shares of
common stock issuable upon conversion of a convertible promissory note and 590,524 shares of common stock issuable upon exercise
of options, in each case exercisable within 60 days of March 15, 2019.
|
|
|
(7)
|
Consists of 619,655 shares of common stock issuable upon exercise of options and 41,667 shares
of common stock issuable upon conversion of a convertible promissory note, in each case exercisable within 60 days of March
15, 2019.
|
|
|
(8)
|
Consists of 104,456 shares of common stock held of record by Mr. Elsey, 582,500 shares of
common stock issuable upon exercise of options and 20,833 shares of common stock issuable upon conversion of a convertible
promissory note, in each case exercisable within 60 days of March 15, 2019.
|
|
|
(9)
|
Consists of 10,207,362 shares of common stock held of record, 291,667 shares of common stock
issuable upon conversion of convertible promissory notes and 4,424,369 shares of common stock issuable upon exercise of options,
in each case exercisable within 60 days of March 15, 2019.
|
Equity Compensation Plan Information
The following table
provides information as of December 31, 2018 about the securities authorized for issuance to our employees, directors and
other eligible participants under our equity compensation plans, consisting of the Amended and Restated 2000 Stock Option and
Incentive Plan, the 2010 Equity Incentive Plan and the 2018 Equity Incentive Plan
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
|
|
|
|
remaining available for
|
|
|
|
|
Number of securities to
|
|
|
|
|
|
future issuance under
|
|
|
|
|
be issued upon exercise
|
|
|
Weighted-average exercise
|
|
|
equity compensation plans
|
|
|
|
|
of outstanding options,
|
|
|
price of outstanding options,
|
|
|
(excluding securities
|
|
|
|
|
warrants and rights
|
|
|
warrants and rights
|
|
|
reflected in column (a))
|
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by
security holders
|
|
|
9,044,825
|
|
|
$
|
0.28
|
|
|
|
3,395,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security
holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,044,825
|
|
|
$
|
0.28
|
|
|
|
3,395,000
|
|
Item 13. Certain
Relationships and Related Transactions, and Director Independence.
Related Party Transactions
Described below are
transactions and series of similar transactions that have occurred during fiscal 2018 to which we were a party or are a party
in which:
|
|
·
|
the
amounts involved exceeded or will exceed $120,000; and
|
|
|
·
|
a
director, executive officer, beneficial owner of more than five percent of any class
of our voting securities or any member of their immediate family had or will have a direct
or indirect material interest.
|
GtreeBNT
In August 2017, the
Company and GtreeBNT reached an agreement to expand the territorial definition of the RGN-137 License Agreement in Japan in exchange
for a series of payments, two of which were received in 2017 with the remaining two were received in 2018. Under the amendment
the Territory was expanded to include Europe, Canada, South Korea, Australia and Japan.
U.S. Joint Venture
On January 28, 2015,
we announced that we had entered into a Joint Venture Agreement with GtreeBNT a shareholder of the Company. ReGenTree, LLC was
created under the Agreement and is jointly owned by us and GtreeBNT. ReGenTree intends to commercialize RGN-259 for treatment
of dry eye and neurotrophic keratopathy, an orphan indication in the United States. GtreeBNT will be responsible for funding all
product development and commercialization efforts and holds a majority interest in ReGenTree that varies depending on development
milestones achieved and eventual commercialization path, if successful. In conjunction with the Joint Venture Agreement, we also
entered into a royalty-bearing license with ReGenTree pursuant to which we granted to ReGenTree the right to develop and exclusively
commercialize RGN-259 in the United States. We received a total of $1 million in two tranches under the terms of the License Agreement.
The first tranche of $500,000 was received in March 2015 and a second in the amount of $500,000, was received in September 2015.
On April 6, 2016, we received $250,000 from ReGenTree and executed an amendment to the license agreement on April 28, 2016. Under
the amendment, the territorial rights were expanded to include Canada.
Our initial ownership
interest in ReGenTree was 49% and has been reduced to 38.5% after filing of the final clinical study report with the FDA for the
Phase 3 trial for Dry Eye Syndrome completed in 2017. Based on when, and if, ReGenTree achieves certain additional development
milestones in the U.S. with RGN-259, our equity ownership may be incrementally reduced to between 38.5% and 25%, with 25% being
the final equity ownership upon FDA approval of an NDA for Dry Eye Syndrome in the U.S. In addition to our equity ownership, RegeneRx
retains a royalty on net sales that varies between single and low double digits, depending on whether commercial sales are made
by ReGenTree or a licensee. In the event ReGenTree is acquired, or a change of control occurs following achievement of an NDA,
RegeneRx shall be entitled to a minimum of 40% of all proceeds paid or payable and will forgo any future royalties.
In September 2015,
ReGenTree began a Phase 2/3 clinical trial in patients with dry eye syndrome (“DES”) and a Phase 3 clinical trial
in patients with neurotrophic keratopathy (“NK”), both in the U.S. In May 2016, we reported the results of the 317-patient
Phase 2/3 trial (ARISE-1). The FDA approved ReGenTree’s Phase 3 protocol for DES in late summer 2016 and we initiated a
second Phase 3 trial (ARISE-2) that was completed in approximately 600 patients, the results of which have been reported elsewhere
in this document.
The NK trial (SEER-1),
a smaller study in an orphan population, has enrolled seventeen patients thus far, and has several additional patients being screened,
with a goal of forty-six. In 2018, ReGenTree disclosed that 7 of 17 patients enrolled SEER-1 have completely healed. While these
preliminary observations are encouraging, it should be noted that the patients and treating physicians remain masked while the
trial is on-going, so it is not known whether the healed patients are in the RGN-259 group, placebo group, or distributed among
both. It is not known when this study will be completed.
Director Independence
Under NYSE Amex listing
standards, a majority of the members of a listed company’s board of directors must qualify as “independent,”
as affirmatively determined by the board. Although our common stock is no longer listed on the NYSE Amex exchange, we have determined
the independence of our directors using the NYSE Amex definitions of independence. Our board consults with counsel to ensure that
its determinations are consistent with relevant securities and other laws and regulations regarding the definition of “independent,”
including those set forth in pertinent listing standards of the NYSE Amex, as in effect from time to time.
Consistent with these
considerations, after review of all relevant identified transactions or relationships between each director, or any of his family
members, and our company, our senior management and our independent auditors, our board has determined that the following three
directors are independent directors within the meaning of the applicable NYSE Amex listing standards: Mr. Elsey, Mr. Bove and
Mr. McNay. In making this determination, the board found that none of these directors had a material or other disqualifying relationship
with us. Mr. Finkelstein, our President and Chief Executive Officer, and Dr. Goldstein our Chief Scientific Officer, are
not independent by virtue of their employment with us.
In determining the
independence of Mr. Bove, the board of directors took into account the significant ownership of our common stock by Essetifin
S.p.A. and our License Agreement with Lee’s Pharmaceuticals. The board of directors does not believe that any of the transactions
with Lee’s or Essetifin and its affiliates described in this report has interfered or would reasonably be expected to interfere
with Mr. Bove’s exercise of independent judgment in carrying out his responsibilities as a director of our company.
Item 14. Principal
Accounting Fees and Services.
The following table
represents aggregate fees billed to us for the fiscal years ended December 31, 2018 and 2017 by our independent registered public
accounting firm CohnReznick LLP. All such fees described below were approved by the audit committee.
|
|
|
2018
|
|
|
2017
|
|
|
Audit fees
|
|
$
|
73,000
|
|
|
$
|
84,000
|
|
|
Tax fees
(1)
|
|
|
23,000
|
|
|
|
53,000
|
|
|
Total Fees
|
|
$
|
96,000
|
|
|
$
|
137,000
|
|
|
|
(1)
|
Tax
fees include the preparation of our corporate federal and state income tax returns.
|
Our audit committee
has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent registered
public accounting firm. The policy generally pre-approves specified services in the defined categories of audit services, audit-related
services, and tax services up to specified amounts. Pre-approval may also be given as part of the audit committee’s approval
of the scope of the engagement of the independent registered public accounting firm or on an individual explicit case-by-case
basis before the independent registered public accounting firm is engaged to provide each service. On a periodic basis, the independent
registered public accounting firm reports to the audit committee on the status of actual costs for approved services against the
approved amounts.
The audit committee
has determined that the rendering of the services other than audit services by CohnReznick LLP is compatible with maintaining
that firm’s independence.
PART
IV
Item 15. Exhibits,
Financial Statement Schedules.
See Exhibit Index to Form
10-K following the signature page hereto, which is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
|
|
RegeneRx Biopharmaceuticals, Inc.
(Registrant)
|
|
|
|
|
|
Date: March 29, 2019
|
By:
|
/s/ J.J. Finkelstein
|
|
|
|
J.J. Finkelstein
|
|
|
|
President and Chief Executive Officer
|
POWER
OF ATTORNEY
Pursuant to the requirements
of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
In addition, each
of the following persons hereby constitutes and appoints J.J. Finkelstein as his true and lawful attorney-in-fact and agent, with
the full power of substitution, for him and in his name, to sign any and all amendments to this report, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ Allan L. Goldstein
|
|
Chairman of the Board, Chief Scientific
|
|
March 29, 2019
|
|
Allan L. Goldstein
|
|
Officer, and Director
|
|
|
|
|
|
|
|
|
|
/s/ J.J. Finkelstein
|
|
President, Chief Executive Officer, and
|
|
March 29, 2019
|
|
J.J. Finkelstein
|
|
Director (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/ R. Don Elsey
|
|
Director
|
|
March 29, 2019
|
|
R. Don Elsey
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Joseph C. McNay
|
|
Director
|
|
March 29, 2019
|
|
Joseph C. McNay
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Mauro Bove
|
|
Director
|
|
March 29, 2019
|
|
Mauro Bove
|
|
|
|
|
RegeneRx
Biopharmaceuticals, Inc.
Index to Financial
Statements
Report
of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Regenerx Biopharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the
accompanying balance sheets of RegeneRx Biopharmaceuticals, Inc. (the “Company”) as of December 31, 2018 and 2017, and
the related statements of operations, changes in stockholders’ deficit and cash flows for the years then ended and the related
notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and
the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted
in the United States of America.
The Company's Ability to Continue as a Going Concern
The
financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company has incurred losses from operations since inception and will need additional capital to
fund future operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the outcome of this uncertainty
.
Basis for Opinion
These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with the respect to the Company in accordance with the
U.S. Federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to fraud or error. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we
are required to obtain an understanding of internal control over financial reporting, but not for the purposes of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
We have served as the Company’s auditor since 2012.
Tysons, Virginia
March 29, 2019
RegeneRx
Biopharmaceuticals, Inc.
Balance Sheets
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
237,261
|
|
|
$
|
181,708
|
|
|
Prepaid expenses and other current assets
|
|
|
36,609
|
|
|
|
35,442
|
|
|
Total current assets
|
|
|
273,870
|
|
|
|
217,150
|
|
|
Property and equipment, net of accumulated depreciation of $97,921 and $95,168
|
|
|
1,418
|
|
|
|
4,171
|
|
|
Other assets
|
|
|
5,752
|
|
|
|
5,752
|
|
|
Total assets
|
|
$
|
281,040
|
|
|
$
|
227,073
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
92,433
|
|
|
$
|
66,461
|
|
|
Unearned revenue
|
|
|
76,761
|
|
|
|
78,893
|
|
|
Accrued expenses
|
|
|
91,058
|
|
|
|
232,365
|
|
|
Convertible promisory notes, net
|
|
|
54,754
|
|
|
|
591,036
|
|
|
Fair value of derivative liabilities
|
|
|
-
|
|
|
|
1,184,334
|
|
|
Total current liabilities
|
|
|
315,006
|
|
|
|
2,153,089
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
|
Unearned revenue
|
|
|
2,178,087
|
|
|
|
2,045,622
|
|
|
Convertible promisory notes, net
|
|
|
-
|
|
|
|
43,819
|
|
|
Fair value of derivative liabilities
|
|
|
-
|
|
|
|
100,835
|
|
|
Total liabilities
|
|
|
2,493,093
|
|
|
|
4,343,365
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value per share, 1,000,000
shares authorized; no shares issued
|
|
|
-
|
|
|
|
-
|
|
|
Common stock, par value $.001 per share, 200,000,000
shares authorized, 128,432,478 and 109,789,703 issued and outstanding
|
|
|
128,433
|
|
|
|
109,790
|
|
|
Additional paid-in capital
|
|
|
103,541,291
|
|
|
|
100,333,144
|
|
|
Accumulated deficit
|
|
|
(105,881,777
|
)
|
|
|
(104,559,226
|
)
|
|
Total stockholders' deficit
|
|
|
(2,212,053
|
)
|
|
|
(4,116,292
|
)
|
|
Total liabilities and stockholders' deficit
|
|
$
|
281,040
|
|
|
$
|
227,073
|
|
The accompanying
notes are an integral part of these financial statements.
RegeneRx
Biopharmaceuticals, Inc.
Statements of
Operations
|
|
|
Years ended December
31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
69,667
|
|
|
$
|
56,652
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
81,043
|
|
|
|
143,911
|
|
|
General and administrative
|
|
|
1,311,993
|
|
|
|
1,357,371
|
|
|
Total operating expenses
|
|
|
1,393,036
|
|
|
|
1,501,282
|
|
|
Loss from operations
|
|
|
(1,323,369
|
)
|
|
|
(1,444,630
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
Inducement expense
|
|
|
(582,904
|
)
|
|
|
-
|
|
|
Interest expense
|
|
|
(87,280
|
)
|
|
|
(170,883
|
)
|
|
Change in fair value of derivative liabilities
|
|
|
-
|
|
|
|
2,000,605
|
|
|
Total other (expense) income
|
|
|
(670,184
|
)
|
|
|
1,829,722
|
|
|
(Loss) income before taxes
|
|
|
(1,993,553
|
)
|
|
|
385,092
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
98,605
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(1,993,553
|
)
|
|
$
|
286,487
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share
|
|
$
|
(0.02
|
)
|
|
$
|
0.00
|
|
|
Diluted net (loss) income per common share
|
|
$
|
(0.02
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
|
120,716,329
|
|
|
|
107,442,936
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - diluted
|
|
|
120,716,329
|
|
|
|
120,928,833
|
|
The accompanying
notes are an integral part of these financial statements.
RegeneRx
Biopharmaceuticals, Inc.
Statements of
Changes in Stockholders' Deficit
Years ended December
31, 2018 and 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Common stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
paid-in capital
|
|
|
deficit
|
|
|
deficit
|
|
|
Balance, December 31, 2016
|
|
|
106,787,151
|
|
|
$
|
106,787
|
|
|
$
|
98,672,368
|
|
|
$
|
(104,845,713
|
)
|
|
$
|
(6,066,558
|
)
|
|
Issuance of common stock - option exercises
|
|
|
95,608
|
|
|
|
96
|
|
|
|
15,202
|
|
|
|
-
|
|
|
|
15,298
|
|
|
Issuance of common stock - note conversions
|
|
|
2,506,944
|
|
|
|
2,507
|
|
|
|
373,534
|
|
|
|
-
|
|
|
|
376,041
|
|
|
Issuance of common stock - warrant exercises
|
|
|
400,000
|
|
|
|
400
|
|
|
|
59,600
|
|
|
|
-
|
|
|
|
60,000
|
|
|
Reclassification of warrant liability
|
|
|
-
|
|
|
|
-
|
|
|
|
941,063
|
|
|
|
-
|
|
|
|
941,063
|
|
|
Share-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
271,377
|
|
|
|
-
|
|
|
|
271,377
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
286,487
|
|
|
|
286,487
|
|
|
Balance, December 31, 2017
|
|
|
109,789,703
|
|
|
|
109,790
|
|
|
|
100,333,144
|
|
|
|
(104,559,226
|
)
|
|
|
(4,116,292
|
)
|
|
Issuance of common stock - note conversions
|
|
|
13,495,716
|
|
|
|
13,496
|
|
|
|
796,247
|
|
|
|
-
|
|
|
|
809,743
|
|
|
Issuance of common stock - warrant exercises
|
|
|
5,147,059
|
|
|
|
5,147
|
|
|
|
1,024,265
|
|
|
|
-
|
|
|
|
1,029,412
|
|
|
Inducement expense related to warrant reprice
|
|
|
-
|
|
|
|
-
|
|
|
|
582,904
|
|
|
|
-
|
|
|
|
582,904
|
|
|
Offering expense related to warrant reprice
|
|
|
-
|
|
|
|
-
|
|
|
|
(85,565
|
)
|
|
|
-
|
|
|
|
(85,565
|
)
|
|
Cumulative effect adjustment from adoption of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASU 2017-11
|
|
|
-
|
|
|
|
-
|
|
|
|
614,167
|
|
|
|
671,002
|
|
|
|
1,285,169
|
|
|
Share-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
276,129
|
|
|
|
-
|
|
|
|
276,129
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,993,553
|
)
|
|
|
(1,993,553
|
)
|
|
Balance, December 31, 2018
|
|
|
128,432,478
|
|
|
$
|
128,433
|
|
|
$
|
103,541,291
|
|
|
$
|
(105,881,777
|
)
|
|
$
|
(2,212,053
|
)
|
The accompanying
notes are an integral part of these financial statements.
RegeneRx
Biopharmaceuticals, Inc.
Statements of
Cash Flows
|
|
|
Years ended December
31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(1,993,553
|
)
|
|
$
|
286,487
|
|
|
Adjustments to reconcile net (loss) income to net
cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,753
|
|
|
|
3,048
|
|
|
Share-based compensation
|
|
|
276,129
|
|
|
|
271,377
|
|
|
Non-cash interest expense
|
|
|
65,899
|
|
|
|
122,833
|
|
|
Inducement expense
|
|
|
582,904
|
|
|
|
-
|
|
|
Change in fair value of derivative liabilities
|
|
|
-
|
|
|
|
(2,000,605
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(1,167
|
)
|
|
|
44,494
|
|
|
Accounts payable
|
|
|
25,972
|
|
|
|
(9,234
|
)
|
|
Accrued expenses
|
|
|
22,436
|
|
|
|
75,167
|
|
|
Unearned revenue
|
|
|
130,333
|
|
|
|
543,348
|
|
|
Net cash used in operating activities
|
|
|
(888,294
|
)
|
|
|
(663,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Payment of offering costs
|
|
|
(85,565
|
)
|
|
|
-
|
|
|
Proceeds from exercise of common stock warrants
|
|
|
1,029,412
|
|
|
|
60,000
|
|
|
Proceeds from exercise of common stock options
|
|
|
-
|
|
|
|
15,298
|
|
|
Net cash provided by financing activities
|
|
|
943,847
|
|
|
|
75,298
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
55,553
|
|
|
|
(587,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
181,708
|
|
|
|
769,495
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
237,261
|
|
|
$
|
181,708
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Operating and Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of promissory notes to common stock
|
|
$
|
646,000
|
|
|
$
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of accrued interest to common stock
|
|
$
|
163,743
|
|
|
$
|
76,041
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrants issued to placement agent
|
|
$
|
15,545
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Culmulative effect adjustment from adoption of ASU 2017-11
|
|
$
|
1,285,169
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrants reclassified to equity
|
|
$
|
-
|
|
|
$
|
941,063
|
|
The accompanying
notes are an integral part of these financial statements.
RegeneRx
Biopharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2018
|
|
1.
|
ORGANIZATION AND
BUSINESS
|
Organization
and Nature of Operations.
RegeneRx
Biopharmaceuticals, Inc. (“RegeneRx”, the “Company”, “We”, “Us”, “Our”),
a Delaware corporation, was incorporated in 1982. We are focused on the discovery and development of novel molecules to accelerate
tissue and organ repair. Our operations are confined to one business segment: the development and marketing of product candidates
based on Thymosin Beta 4 (“Tß4”), an amino acid peptide.
Management
Plans to Address Operating Conditions.
Our
strategy is aimed at being capital efficient while leveraging our portfolio of clinical assets by seeking strategic relationships
with organizations with clinical development capabilities including development capital. Currently, we have active partnerships
in four major territories: North America, Europe, China and Pan Asia. In each case, the cost of development is being borne by
our partners with no financial obligation for RegeneRx. We still have significant clinical assets to develop, primarily RGN-352
(injectable formulation of Tß4 for cardiac and CNS disorders) in the U.S., Pan Asia, and Europe, and RGN-259 in the EU.
Our goal is to wait until satisfactory results are obtained from the current ophthalmic clinical program in the U.S. before moving
into the EU. However, we intend to continue to develop RGN-352, our injectable systemic product candidate for cardiac and central
nervous system indications, either by obtaining grants to fund a Phase 2a clinical trial in the cardiovascular or central nervous
system fields or finding a suitable partner with the resources and capabilities to develop it as we have with RGN-259.
Since
inception, and through December 31, 2018, we have an accumulated deficit of $106 million and we had cash and cash equivalents
of $237,261 as of December 31, 2018. We anticipate incurring additional operating losses in the future as we continue to explore
the potential clinical benefits of Tß4-based product candidates over multiple indications. We have entered into a series
of strategic partnerships under licensing and joint venture agreements where our partners are responsible for advancing development
of our product candidates by sponsoring multiple clinical trials. On February 27, 2019, we sold a series of convertible promissory
notes to
management, the Company’s Board of Directors and
accredited investors including
Essetifin S.p.A., our largest shareholder. The sale of the notes will result in gross proceeds to the Company of $1,300,000 over
two closings. The first closing in the amount of $650,000 occurred on February 27
th
and the second closing, also in
the amount of $650,000 will occur within three days of the Company providing notice of the enrollment of the first patent in the
ARISE-3 clinical trial in DES sponsored by ReGenTree. ReGenTree has informed us that they now expect the ARISE-3 clinical trial to occur in the second quarter of 2019. Because the Company does not control the timing of the ARISE-3 clinical trial, we cannot be certain that this timing is correct or that it may not change. The notes contain a $0.12 conversion
price and the purchasers also received a warrant exercisable at $0.18 to purchase additional shares of common stock equal to 75%
of the number of shares into which each note is initially convertible. At present, with the receipt of the sale proceeds from
the first closing coupled with the anticipated proceeds from the second closing, we will have sufficient cash to fund planned
operations through the first quarter of 2020.
While
we successfully secured additional operating capital to continue operations through the first quarter of 2020 we will need substantial
additional funds in order to significantly advance development of our unlicensed programs. Accordingly, we will continue to evaluate
opportunities to raise additional capital and are in the process of exploring various alternatives, including, without limitation,
a public or private placement of our securities, debt financing, corporate collaboration and licensing arrangements, or the sale
of our Company or certain of our intellectual property rights.
These
factors raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements have been
prepared assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and
the satisfaction of our liabilities in the normal course of business.
Although
we intend to continue to seek additional financing or additional strategic partners, we may not be able to complete a financing
or corporate transaction, either on favorable terms or at all. If we are unable to complete a financing or strategic transaction,
we may not be able to continue as a going concern after our funds have been exhausted, and we could be required to significantly
curtail or cease operations, file for bankruptcy or liquidate and dissolve. There can be no assurance that we will be able to
obtain any sources of funding. The financial statements do not include any adjustments relating to the recoverability and classification
of recorded asset amounts and classification of liabilities that might be necessary should we be forced to take any such actions.
In
addition to our current operational requirements, we continually refine our operating strategy and evaluate alternative clinical
uses of Tß4. However, substantial additional resources will be needed before we will be able to achieve sustained profitability.
Consequently, we continually evaluate alternative sources of financing such as the sharing of development costs through strategic
collaboration agreements. There can be no assurance that our financing efforts will be successful and, if we are not able to obtain
sufficient levels of financing, we would delay certain clinical and/or research activities and our financial condition would be
materially and adversely affected. Even if we are able to obtain sufficient funding, other factors including competition, dependence
on third parties, uncertainty regarding patents, protection of proprietary rights, manufacturing of peptides, and technology obsolescence
could have a significant impact on us and our operations.
To
achieve profitability, we, and/or a partner, must successfully conduct pre-clinical studies and clinical trials, obtain required
regulatory approvals and successfully manufacture and market those pharmaceuticals we wish to commercialize. The time required
to reach profitability is highly uncertain, and there can be no assurance that we will be able to achieve sustained profitability,
if at all.
|
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
|
Use
of Estimates.
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America (“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported
earnings, financial position and various disclosures. Critical accounting policies involved in applying our accounting policies
are those that require management to make assumptions about matters that are highly uncertain at the time the accounting estimate
was made and those for which different estimates reasonably could have been used for the current period. Critical accounting estimates
are also those which are reasonably likely to change from period to period and would have a material impact on the presentation
of our financial condition, changes in financial condition or results of operations. Our most critical accounting estimates relate
to accounting policies for revenue recognition, valuation of derivatives and share-based arrangements. Management bases its estimates
on historical experience and on various other assumptions that it believes are reasonable under the circumstances. Actual results
could differ from these estimates.
Cash
and Cash Equivalents.
Cash and cash equivalents consist of cash and highly-liquid investments with original maturities of
three months or less when acquired and are stated at cost that approximates their fair market value.
Concentration
of Credit Risk.
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily
of cash and cash equivalents. We limit our exposure to credit loss by placing our cash and cash equivalents with high quality
financial institutions and, in accordance with our investment policy, in securities that are rated investment grade.
Property
and Equipment.
Property and equipment consist of office furniture and equipment and is stated at cost and depreciated over
the estimated useful lives of the assets (generally two to five years) using the straight-line method. Expenditures for maintenance
and repairs which do not significantly prolong the useful lives of the assets are charged to expense as incurred. Depreciation
expense was $2,753 and $3,048 for the years ended December 31, 2018 and 2017, respectively.
Impairment
of Long-lived Assets.
When we record long-lived assets, our policy is to regularly perform reviews to determine if and when
the carrying value of our long-lived assets becomes impaired. During the years ended December 31, 2018 and 2017, no impairment
losses were recorded.
Convertible
Notes with Detachable Warrants.
In accordance with the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 470-20,
Debt with Conversion and Other Options
, the proceeds received from convertible
notes are allocated to the instruments based on the relative fair values of the convertible notes without the warrants and of
the warrants themselves at the time of issuance. The portion of the proceeds allocated to the warrants is recognized as additional
paid-in capital and a debt discount. The debt discount related to warrants is accreted into interest expense through maturity
of the notes.
Derivative
Financial Instruments.
Derivative financial instruments consist of financial instruments or other contracts that contain a
notional amount and one or more underlying variables (e.g. interest rate, security price or other variable), which require no
initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial
instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as
liabilities or, in rare instances, assets.
The
Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However,
the Company has issued financial instruments including warrants that are either (i) not afforded equity classification, (ii) embody
risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. In certain instances,
these instruments are required to be carried as derivative liabilities, at fair value, in the Company’s financial statements.
The
Company estimates the fair values of its derivative financials instrument using the Black-Scholes option pricing model because
it embodies all of the requisite assumptions (including trading volatility, estimated terms and risk-free rates) necessary to
fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant
and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal
and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading
market price of the Company’s common stock, which has a high-historical volatility. Since derivative financial instruments
are initially and subsequently carried at fair values, the Company’s operating results reflect the volatility in these estimate
and assumption changes in each reporting period.
Upon
the adoption of new accounting guidance on January 1, 2018, the embedded conversion features in the Company’s convertible
notes are no longer accounted for as derivative liabilities.
Revenue
Recognition. Subsequent to the adoption of Accounting Standards Codification Revenue from Contracts with Customers (“ASC
606”) on January 1, 2018
The
Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts
with customers, (ii) identification of distinct performance obligations in the contract, (iii) determination of contract transaction
price, (iv) allocation of contract transaction price to the performance obligations and (v) determination of revenue recognition
based on timing of satisfaction of the performance obligation. The Company recognizes revenues upon the satisfaction of its performance
obligation (upon transfer of control of promised goods or services to our customers) in an amount that reflects the consideration
to which it expects to be entitled to in exchange for those goods or services. Whenever we determine that an arrangement should
be accounted for as a single unit of accounting, we must determine the period over which the performance obligations will be performed,
and revenue will be recognized. Revenue will be recognized using either a relative performance or straight-line method. We recognize
revenue using the relative performance method provided that we can reasonably estimate the level of effort required to complete
our performance obligations under an arrangement and such performance obligations are provided on a best-efforts basis. Revenue
recognized is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned,
as determined using the relative performance method, as of each reporting period.
The
Company’s contracts with customers may at times include multiple promises to transfer products and services. Contracts with
multiple promises are analyzed to determine whether the promises, which may include a license together with performance obligations
such as providing a clinical supply of product and steering committee services, are distinct and should be accounted for as separate
performance obligations or whether they must be accounted for as a single performance obligation. The Company accounts for individual
performance obligations separately if they are distinct. Determining whether products and services are considered distinct performance
obligations may require significant judgment. If we cannot reasonably estimate when our performance obligation either ceases or
becomes inconsequential and perfunctory, then revenue is deferred until we can reasonably estimate when the performance obligation
ceases or becomes inconsequential. Revenue is then recognized over the remaining estimated period of performance.
Whenever
the Company determines that an arrangement should be accounted for as a combined performance obligation, we must determine the
period over which the performance obligation will be performed and when revenue will be recognized. Revenue is recognized using
either a relative performance or straight-line method. We recognize revenue using the relative performance method provided that
the we can reasonably estimate the level of effort required to complete our performance obligation under an arrangement and such
performance obligation is provided on a best-efforts basis. Revenue recognized is limited to the lesser of the cumulative amount
of payments received or the cumulative amount of revenue earned, as determined using the relative performance method, as of each
reporting period.
If
the Company cannot reasonably estimate the level of effort required to complete our performance obligation under an arrangement,
the performance obligation is provided on a best-efforts basis and we can reasonably estimate when the performance obligation
ceases or the remaining obligations become inconsequential and perfunctory, then the total payments under the arrangement, excluding
royalties and payments contingent upon achievement of substantive milestones, would be recognized as revenue on a straight-line
basis over the period we expect to complete our performance obligations. Revenue is limited to the lesser of the cumulative amount
of payments received or the cumulative amount of revenue earned, as determined using the straight-line basis, as of the period
ending date.
If
the Company cannot reasonably estimate when our performance obligation either ceases or becomes inconsequential and perfunctory,
revenue is deferred until we can reasonably estimate when the performance obligation ceases or becomes inconsequential. Revenue
is then recognized over the remaining estimated period of performance.
At
the inception of each arrangement that includes development milestone payments, the Company evaluates the probability of reaching
the milestones and estimates the amount to be included in the transaction price using the most likely amount method. If it is
probable that a significant revenue reversal would not occur in the future, the associated milestone value is included in the
transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals,
are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained
as management is unable to assert that a reversal of revenue would not be possible. The transaction price is then allocated to
each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when
the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates
the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate
of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues
and earnings in the period of adjustment.
Amounts
received prior to satisfying the above revenue recognition criteria are recorded as unearned revenue in our accompanying balance
sheets.
Contract
assets are generated when contractual billing schedules differ from revenue recognition timing. Contract assets represent a conditional
right to consideration for satisfied performance obligations that becomes a billed receivable when the conditions are satisfied.
There were no contract assets as of December 31, 2018.
Contract
liabilities result from arrangements where we have received payment in advance of performance under the contract. Changes in contract
liabilities are generally due to either receipt of additional advance payments or our performance under the contract.
We
have the following amounts recorded for contract liabilities:
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned revenue
|
|
$
|
2,254,848
|
|
|
$
|
2,124,515
|
|
The
contract liabilities amount disclosed above as of December 31, 2018, is primarily related to revenue being recognized on a straight-line
basis over periods ranging from 23 to 30 years, which, in management’s judgment, is the best measure of progress towards
satisfying the performance obligations and represents the Company’s best estimate of the period of the obligation.
Revenue
recognized from contract liabilities during the year ended December 31, 2018, totaled $58,073. Revenue
is expected to be recognized in the future from contract liabilities as the related performance obligations are satisfied.
For
details about the Company’s revenue recognition policy prior to the adoption of ASC 606, refer to the Company’s annual
report on form 10-K for the year ended December 31, 2017.
Variable
Interest Entities
On January 28, 2015, the Company entered into a Joint Venture Agreement with GtreeBNT, a shareholder in
the Company. The Joint Venture Agreement provides for the operation of the joint venture, jointly owned by the Company and GtreeBNT,
which is commercializing RGN-259 for the treatment of dry eye and neurotrophic keratopathy in the U.S. and Canada. The Company
has determined that the Joint Venture is a “variable interest entity”, since the total equity investment at risk is
not sufficient to permit the Joint Venture to finance its activities without additional subordinated financial support. Further,
because of GtreeBNT’s majority equity stake in the Joint Venture, voting control, control of the board of directors, and
substantive management rights, and given that the Company does not have the power to direct the Joint Venture’s activities
that most significantly impact its economic performance, the Company determined that it is not the primary beneficiary of the
Joint Venture and therefore is not required to consolidate the Joint Venture. The Company reports its equity stake in the Joint
Venture using the equity method of accounting because, while it does not control the Joint Venture, the Company can exert significant
influence over the Joint Ventures activities by virtue of its board representation.
Because
the Company is not obligated to fund the Joint Venture and has not provided any financial support and has no commitment to provide
financial support in the future to the Joint Venture, the carrying value of its investment in the Joint Venture is zero at both
December 31, 2018 and 2017. As a result, the Company is not recognizing its share (38.5%) of the Joint Venture’s operating
losses and will not recognize any such losses until the Joint Venture produces net income (as opposed to net losses) and at that
point the Company will reduce its share of the Joint Venture’s net income by its share of previously suspended net losses.
As of December 31, 2018, because it has not provided any financial support, the Company has no financial exposure as a result
of its variable interest in the Joint Venture.
Research
and Development
. Research and development (“R&D”) costs are expensed as incurred and include all of the wholly-allocable
costs associated with our various clinical programs passed through to us by our outsourced vendors. Those costs include: manufacturing
T
b
4; formulation of T
b
4 into the various product
candidates; stability for both T
b
4 and the various formulations; pre-clinical toxicology;
safety and pharmacokinetic studies; clinical trial management; medical oversight; laboratory evaluations; statistical data analysis;
regulatory compliance; quality assurance; and other related activities. R&D includes cash and non-cash compensation, employee
benefits, travel and other miscellaneous costs of our internal R&D personnel, who are wholly dedicated to R&D efforts.
R&D also includes a pro-ration of our common infrastructure costs for office space and communications.
Patent
Costs.
Costs related to filing and pursuing patent applications are recognized as general and administrative expenses as incurred
since recoverability of such expenditures is uncertain.
Income
Taxes.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. The Tax Cuts and Jobs Act, which was enacted on December 22, 2017, included
a number of changes to existing U.S. tax laws, most notably the reduction of the U.S. corporate income tax rate from 35% to 21%,
beginning in 2018. We remeasured our deferred tax assets and deferred tax liabilities as of December 31, 2017 to reflect the reduction
in the enacted U.S. corporate income tax rate.
The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making that assessment. We recorded a full valuation allowance against all
estimated net deferred tax assets at December 31, 2018 and 2017.
We
recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income
tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or
measurement are reflected in the period in which the change in judgment occurs. Our policy for recording interest and penalties
associated with audits is that penalties and interest expense are recorded in “Income taxes” in our statements of
operations.
We
have significant net operating loss carryforwards to potentially reduce future federal and state taxable income, and research
and experimentation tax credit carryforwards available to potentially offset future federal and state income taxes. Use of our
net operating loss and research and experimentation credit carryforwards may be limited due to changes in our ownership as defined
within Section 382 of the Internal Revenue Code.
Net
(Loss) Income Per Common Share.
Basic net (loss) income per common share for 2018 and 2017 is based on the weighted-average
number of shares of common stock outstanding during the years. Diluted loss per share is based on the weighted-average number
of shares of common stock outstanding during each year in which a loss is incurred potentially dilutive shares are excluded because
the effect is antidilutive. In years where there is net income, diluted income per share is based on the weighted-average number
of shares of common stock outstanding plus dilutive securities with a purchase or conversion price below the per share price of
our common stock on the last day of the year. The potentially dilutive securities include 14,182,086 shares and 25,146,533 shares
in 2018 and 2017, respectively, reserved for the conversion of convertible debt or exercise of outstanding options and warrants.
For the year ended December 31, 2017, 13,485,897 dilutive securities related to convertible debt and options, were included in
the diluted income per share calculation.
Share-Based
Compensation.
We measure share-based compensation expense based on the grant date fair value of the awards which is then recognized
over the period which service is required to be provided. We estimate the grant date fair value using the Black-Scholes option-pricing
model (“Black-Scholes”). We recognized $276,129 and $271,377 in share-based compensation expense for the years ended
December 31, 2018 and 2017, respectively.
Fair
Value of Financial Instruments.
The carrying amounts of our financial instruments, as reflected in the accompanying balance
sheets, approximate fair value. Financial instruments consist of cash and cash equivalents, accounts payable, and convertible
debt and accrued interest. Because the convertible debt with an interest rate of 5% is with related parties, it was not practicable
to estimate the effect of subjective risk factors, which might influence the value of the debt. The most significant of these
risk factors include the lack of collateralization.
Recently
Adopted Accounting Pronouncements.
In May
2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers
, which
provides guidance for revenue recognition for contracts, superseding the previous revenue recognition requirements, along with
most existing industry-specific guidance. The guidance requires an entity to review contracts in five steps: 1) identify the contract,
2) identify performance obligations, 3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue.
In March 2016, the FASB issued an accounting standard update to clarify the implementation guidance on principal versus agent
considerations. In April 2016, the FASB issued an accounting standard update to clarify the identification of performance obligations
and the licensing implementation guidance, while retaining the related principles for those areas. In May 2016, the FASB issued
an accounting standard update to clarify guidance in certain areas and add some practical expedients to the guidance. The amendments
in these 2016 updates do not change the core principle of the previously issued guidance in May 2014. Effective January 1, 2018,
the Company adopted ASU 2014-09 (Topic 606) using the modified retrospective method through a cumulative adjustment to equity,
which resulted in an immaterial difference and no adjustment to our opening balance of accumulated deficit as of January 1, 2018.
In July
2017, the FASB issued ASU 2017-11,
Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives
and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception
. Part I of this Update addresses the complexity of accounting for
certain financial instruments with down round features. Down round features are features of certain equity-linked instruments
(or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. When
determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature
no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. Part
II of this Update addresses the difficulty of navigating Topic 480,
Distinguishing Liabilities from Equity
, because of
the existence of extensive pending content in the FASB ASC. For public business entities, the amendments in Part I of this Update
are effective for years beginning after December 15, 2018. Effective January 1, 2018, the Company adopted ASU 2017-11. As a result,
the December 31, 2017 qualifying liabilities of approximately $1.3 million were reclassified as equity as of January 1, 2018.
Accordingly, no previously issued financial statements were adjusted as this guidance was applied prospectively.
In May
2017, the FASB issued ASU 2017-09,
Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting
. ASU 2017-09
provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based
payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should
only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the
changes are considered non-substantive. The Company adopted ASU 2017-09 in the first quarter of 2018 and the adoption of this
ASU did not have a material effect on the financial statements.
Recent
Accounting Pronouncements
In February
2016, the FASB issued ASU 2016-02,
Leases
(Topic 842) (“ASC 842”), which amends the existing accounting standards
for leases. The new standard requires lessees to record a right-of-use (“ROU”) asset and a corresponding lease liability
on the balance sheet (with the exception of short-term leases), whereas under current accounting standards, the Company’s
lease portfolio consists of an operating lease and is not recognized on its balance sheets. The new standard also requires expanded
disclosures regarding leasing arrangements. The new standard is effective for the Company beginning January 1, 2019. In July 2018,
the FASB issued ASU 2018-11,
Leases (Topic 842): Targeted Improvements
, which provides an alternative modified transition
method. Under this method, the cumulative-effect adjustment to the opening balance of retained earnings is recognized on the date
of adoption with prior periods not restated.
The new
standard provides a number of optional practical expedients in transition. The Company expects to elect: (1) the ‘package
of practical expedients’, which permits it not to reassess under the new standard its prior conclusions about lease identification,
lease classification, and initial direct costs; (2) the use-of-hindsight; and (3) the practical expedient pertaining to land easements.
In addition, the new standard provides practical expedients for an entity’s ongoing accounting that the Company anticipates
making, such as the (1) the election for certain classes of underlying asset to not separate non-lease components from lease components
and (2) the election for short-term lease recognition exemption for all leases that qualify.
The Company
will adopt ASC 842 as of January 1, 2019, using the alternative modified transition method. The Company has substantially completed
its evaluation of the impact on the Company’s lease portfolio. The Company believes the largest impact will be on the balance
sheet for the accounting of its facilities-related lease, which is its only operating lease entered as a lessee. This lease will
be recognized under the new standard as an ROU asset and operating lease liability. The Company will also be required to provide
expanded disclosures for its leasing arrangement. As of December 31, 2018, the Company had approximately $77,000 of undiscounted
future minimum operating lease commitments that are not recognized on its balance sheet as determined under the current standard.
While substantially
complete, the Company is still in the process of finalizing its evaluation of the effect of ASC 842 on the Company’s financial
statements and disclosures. The Company will finalize its accounting assessment and quantitative impact of the adoption during
the first quarter of fiscal year 2019. As the Company completes its evaluation of this new standard, new information may arise
that could change the Company’s current understanding of the impact to leases. Additionally, the Company will continue to
monitor industry activities and any additional guidance provided by regulators, standards setters, or the accounting profession,
and adjust the Company’s assessment and implementation plans accordingly.
In June
2018, the FASB issued ASU 2018-07:
Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting.
This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods
and services from non-employees, and as a result, the accounting for share-based payments to non-employees will be substantially
aligned. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal
year, early adoption is permitted but no earlier than an entity’s adoption date of Topic 606. The Company does not expect
this new guidance will have a material impact on its financial statements and related disclosures.
The Company
has evaluated all other issued and unadopted ASUs and believes the adoption of these standards will not have a material impact
on its results of operations, financial position or cash flows.
|
3.
|
FAIR VALUE MEASUREMENTS
|
The authoritative
guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are
(i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value
hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may
be used to measure fair value which are the following:
|
|
•
|
Level 1 — Quoted prices in active markets for identical assets and liabilities.
|
|
|
|
|
|
|
•
|
Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities.
|
|
|
|
|
|
|
•
|
Level 3 — Unobservable inputs.
|
As of December
31, 2018 and 2017, our only qualifying assets that required measurement under the foregoing fair value hierarchy were funds held
in our Company bank accounts included in Cash and Cash Equivalents valued at $237,261 and $181,708, respectively, using Level
1 inputs. Our December 31, 2017 balance sheet reflects qualifying liabilities resulting from the price protection provision in
the convertible promissory notes issued in March, July and September of 2013 and January 2014 (see Note 7). Previously we evaluated
the derivative liability embedded in the series of convertible notes using the Black-Scholes model to determine if an adjustment
to the carrying value of the liability was required each reporting period. Given the conditions surrounding the trading of the
Company’s equity securities, the Company had valued its derivative instruments related to embedded conversion features from
the issuance of convertible debentures in accordance with the Level 3 guidelines. Our December 31, 2018 balance sheet no longer
reflects these liabilities pursuant to the adoption ASU 2017-11. As a result, the December 31, 2017 qualifying liabilities were
reclassified as equity.
For the
year ended December 31, 2018, the following table reconciles the beginning and ending balances for financial instruments that
are recognized at fair value in these financial statements.
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
December 31,
|
|
|
New
|
|
|
Change in
|
|
|
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
Issuances
|
|
|
Fair Values
|
|
|
Reclassifications
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion features
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2013
|
|
$
|
412,500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(412,500
|
)
|
|
$
|
-
|
|
|
July 2013
|
|
|
183,334
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(183,334
|
)
|
|
|
-
|
|
|
September 2013
|
|
|
588,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(588,500
|
)
|
|
|
-
|
|
|
January 2014
|
|
|
100,835
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(100,835
|
)
|
|
|
-
|
|
|
Derivative instruments
|
|
$
|
1,285,169
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1,285,169
|
)
|
|
$
|
-
|
|
|
4.
|
LICENSES, INTELLECTUAL PROPERTY, AND RELATED PARTY TRANSACTIONS
|
We have
an exclusive, worldwide licensing agreement with the National Institutes of Health (“NIH”) for all claims to T
b
4
within their broadly-defined patent application. In exchange for this exclusive worldwide license, we must make certain royalty
and milestone payments to the NIH. In 2013, we amended certain provisions of the exclusive license; we were permitted to credit
amounts paid to prosecute or maintain the licensed patent rights during 2013 calendar year against the 2013 minimum annual royalty
of $25,000. Beginning in 2014 the minimum annual royalty is $2,000. No assurance can be given as to whether or when a patent will
be issued, or as to any claims that may be included or excluded within the patent. We have also filed numerous additional patent
applications covering various compositions, uses, formulations and other components of T
b
4,
as well as to novel peptides resulting from our research efforts. Some of these patents have been issued, while many patent applications
are still pending.
We have
also entered into an agreement with a university under the terms of which we have received an exclusive license to technology
and intellectual property. The agreement, which is generally cancelable by us, provided for the payment of a license issue
fee and/or minimum annual payments. The initial license fee of $25,000 was paid in 2010 and no minimum fees were due for
the year ended December 31, 2011. Beginning in 2012, minimum annual maintenance fees are $5,000 annually which was paid in 2012
but has not been paid since. In addition, the agreements provide for payments upon the achievement of certain milestones in product
development. The agreement also requires us to fund certain costs associated with the filing and prosecution of patent applications.
In February 2013, this agreement was amended to include additional technology and intellectual property. The expanded license
does not require payment of an initial license fee or additional annual maintenance fees but will be subject to payments upon
the achievement of certain milestones for a product developed under the amended license of the additional technology and intellectual
property.
All license
fees are included in Research and Development in the accompanying statements of operations.
In 2012,
we entered into a License Agreement (the “Agreement”) with Lee’s Pharmaceutical (HK) Limited (“Lee’s”),
headquartered in Hong Kong, for the license of Thymosin Beta 4 in any pharmaceutical form, including our RGN-259, RGN-352 and
RGN-137 product candidates, in China, Hong Kong, Macau and Taiwan. Under the License Agreement, we are eligible to receive milestone
payments and royalties, ranging from low double digit to high single digit percentages of any commercial sales of the licensed
products. Lee’s will pay for all developmental costs associated with each product candidate. We will provide Tß4 to
Lee’s at no charge for a Phase 2 ophthalmic clinical trial and will provide Tß4 to Lee’s for all other developmental
and clinical work at a price equal to our cost. We will also have the right to exclusively license any improvements made by Lee’s
to RegeneRx’s products outside of the licensed territory. Lee’s paid us $200,000 upon signing of a term sheet in March
2012, and Lee’s paid us an additional $200,000 upon signing of the definitive license agreement. The Company is accounting
for the License Agreement as a revenue arrangement. Since participation in the joint development committee is required it was
deemed to be a material promise. Management has concluded that the participation in the joint development committee is not distinct
from other promised goods and services. The Company assessed the License Agreement in accordance with ASC 606. The Company evaluated
the promised goods and services under the License Agreement and determined that there was one combined performance obligation
representing a series of distinct goods and services including the license to research, develop and commercialize Tß4 in
any pharmaceutical form and participation in the joint development committee. To-date, management has not been able to reasonably
measure the outcome of the performance obligation, but still expects to recover the costs incurred in satisfying the performance
obligation. Accordingly, the Company has deferred all revenue until such time that it can reasonably measure the outcome of the
performance obligation or until the performance obligation becomes onerous. As of December 31, 2018 and 2017, we have unearned
revenue totaling $400,000 pursuant to this Agreement. Revenue will be recognized for future royalty payments as they are earned.
In February 2019, the License Agreement was amended and assigned by Lee’s to their affiliate, Zhaoke Ophthalmology Pharmaceutical
Limited. There are no economic changes to the License Agreement.
On March
7, 2014, we entered into license agreements with GtreeBNT Co., Ltd. The two Licensing Agreements are for the license of territorial
rights to two of our Thymosin Beta 4-based products candidates, RGN-259 and RGN-137.
Under the
License Agreement for RGN-259, our preservative-free eye drop product candidate, GtreeBNT will have the right to develop and commercialize
RGN-259 in Asia (excluding China, Hong Kong, Taiwan, and Macau). The rights will be exclusive in Korea, Japan, Australia, New
Zealand, Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Mongolia, Myanmar (Burma), Philippines, Singapore, Thailand,
Vietnam, and Kazakhstan, and semi-exclusive in India, Pakistan, Bangladesh, Bhutan, Maldives, Nepal, Sri Lanka, Kyrgyzstan, Tajikistan,
Turkmenistan and Uzbekistan, collectively, the Territory (the “259 Territory”). Under the 259 License Agreement we
are eligible to receive aggregate potential milestone payments of up to $3.5 million. In addition, we are eligible to receive
royalties of a low double digit percentage of any commercial sales of the licensed product sold by GtreeBNT in the 259 Territory.
Under the
License Agreement for RGN-137, our topical dermal gel product candidate, GtreeBNT will have the exclusive right to develop and
commercialize RGN-137 in the U.S. (the “137 Territory”). Under the 137 License Agreement we are eligible to receive
aggregate potential milestone payments of up to $3.5 million. In addition, we are eligible to receive royalties of a low double-digit
percentage of any commercial sales of the Company’s licensed product sold by GtreeBNT in the 137 Territory. In August 2017,
we amended the License Agreement for RGN-137 held by GtreeBNT. Under the amendment, the 137 Territory was expanded to include
Europe, Canada, South Korea, Australia and Japan. Under the License Agreement, the Company received a series of non-refundable
payments and is entitled to receive royalties on the future sales of products. The Company is accounting for the license agreement
as a revenue arrangement. Since participation in the joint development committee is required it was deemed to be a material promise.
Management has concluded that the participation in the joint development committee is not distinct from other promised goods and
services. The Company assessed the license agreement in accordance with ASC 606. The Company evaluated the promised goods and
services under the license agreement and determined that there was one combined performance obligation representing a series of
distinct goods and services including the license to research, develop and commercialize RGN-137 and participation in the joint
development committee. Revenue is being recognized on a straight-line basis over a period of 23 years, which, in management’s
judgment, is the best measure of progress towards satisfying the performance obligation and represents the Company’s best
estimate of the period of the obligation. As of December 31, 2018 and 2017, we have unearned revenue totaling $753,623 and $575,971,
respectively, pursuant to this agreement. Revenue will be recognized for future royalty payments as they are earned.
Each License
Agreement contains diligence provisions that require the initiation of certain clinical trials within certain time periods that,
if not met, would result in the loss of rights or exclusivity in certain countries. GtreeBNT will pay for all developmental costs
associated with each product candidate. We have the right to exclusively license any improvements made by GtreeBNT to our products
outside of the licensed territory on a royalty free basis. The two firms have created a joint development committee and continue
to discuss the development of the licensed products and share information relating thereto. Both companies will also share all
non-clinical and clinical data and other information related to development of the licensed product candidates.
On January
28, 2015, the Company entered into the Joint Venture Agreement with GtreeBNT, a shareholder in the Company. The Joint Venture
Agreement provides for the creation of the Joint Venture, jointly owned by the Company and GtreeBNT, which is commercializing
RGN-259 for treatment of dry eye and neurotrophic keratopathy in the U.S. and Canada.
GtreeBNT
is solely responsible for funding all the product development and commercialization efforts of the Joint Venture. GtreeBNT made
an initial contribution of $3 million in cash and received an initial equity stake of 51%. RegeneRx’s ownership interest
in ReGenTree was reduced to 38.5% when the Clinical Study Report was filed for the Phase 2/3 dry eye clinical trial. Based on
when, and if, certain additional development milestones are achieved in the U.S. with RGN-259, our equity ownership may be incrementally
reduced to between 38.5% and 25%, with 25% being the final equity ownership upon approval of an NDA for DES in the U.S. In addition
to our equity ownership, RegeneRx retains a royalty on net sales that varies between single and low double digits, depending on
whether commercial sales are made by ReGenTree or a licensee. In the event ReGenTree is acquired or there is a change of control
that occurs following achievement of an NDA, RegeneRx shall be entitled to a minimum of 40% of all proceeds paid or payable and
will forgo any future royalties. The Company is not required or otherwise obligated to provide financial support to the Joint
Venture.
The Joint
Venture is responsible for executing all development and commercialization activities under the License Agreement, which activities
will be directed by a joint development committee comprised of representatives of the Company and GtreeBNT. The License Agreement
has a term that extends to the later of the expiration of the last patent covered by the License Agreement or 25 years from the
first commercial sale under the License Agreement. The License Agreement may be earlier terminated if the Joint Venture fails
to meet certain commercialization milestones, if either party breaches the License Agreement and fails to cure such breach, as
a result of government action that limits the ability of the Joint Venture to commercialize the product, as a result of a challenge
to a licensed patent, following termination of the license between the Company and certain agencies of the United States federal
government, or upon the bankruptcy of either party.
Under the
License Agreement, the Company received $1.0 million in up-front payments and is entitled to receive royalties on the Joint Venture’s
future sales of products. On April 6, 2016, we received $250,000 from ReGenTree and executed an amendment to the license agreement
on April 28, 2016. Under the amendment the territorial rights were expanded to include Canada. The Company is accounting for the
License Agreement with the Joint Venture as a revenue arrangement. Since participation in the joint development committee is required
it was deemed to be a material promise. Management has concluded that the participation in the joint development committee is
not distinct from other promised goods and services. The Company assessed the license agreements in accordance with ASC 606. The
Company evaluated the promised goods and services under the license agreements and determined that there was one combined performance
obligation representing a series of distinct goods and services including the license to research, develop and commercialize RGN-259
and participation in the joint development committee. Revenue is being recognized on a straight-line basis over a period of 30
years, which, in management’s judgment, is the best measure of progress towards satisfying the performance obligation and
represents the Company’s best estimate of the period of the obligation. As of December 31, 2018 and 2017, we have unearned
revenue totaling $1,101,225 and $1,148,544, respectively, pursuant to this agreement. Revenue will be recognized for future royalty
payments as they are earned.
|
5.
|
COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
|
Prepaid
expenses and other current assets are comprised of the following:
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Prepaid insurance
|
|
$
|
7,604
|
|
|
$
|
2,508
|
|
|
Other
|
|
|
29,005
|
|
|
|
32,934
|
|
|
|
|
$
|
36,609
|
|
|
$
|
35,442
|
|
Accrued
expenses are comprised of the following:
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Accrued professional fees
|
|
$
|
9,480
|
|
|
$
|
9,156
|
|
|
Accrued other
|
|
|
32,459
|
|
|
|
34,771
|
|
|
Accrued compensation
|
|
|
35,411
|
|
|
|
32,368
|
|
|
Accrued interest - convertible debt
|
|
|
13,708
|
|
|
|
156,070
|
|
|
|
|
$
|
91,058
|
|
|
$
|
232,365
|
|
|
|
6.
|
EMPLOYEE BENEFIT
PLANS
|
In 2018
and 2017, the Company provided health and dental insurance to an employee under a group plan. No retirement plan was in place
for 2018 or 2017.
2012
Convertible Note
On October
19, 2012, we completed a private placement of convertible notes (the “2012 Notes”) raising an aggregate of $300,000
in gross proceeds. The 2012 Notes were originally scheduled to mature after twenty-four (24) months from issuance. The 2012 Notes
bore interest at a rate of five percent (5%) per annum and were convertible into shares of our common stock at a conversion price
of fifteen cents ($0.15) per share (subject to adjustment as described in the 2012 Notes) at any time prior to repayment, at the
election of the investors. In the aggregate, the 2012 Notes were convertible into up to 2,000,000 shares of our common stock excluding
interest.
At any
time prior to maturity of the 2012 Notes, with the consent of the holders of a majority in interest of the 2012 Notes, we could
prepay the outstanding principal amount of the 2012 Notes plus unpaid accrued interest without penalty. Upon the commission of
any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing
by or against the Company of a petition in bankruptcy or any petition for relief under the federal bankruptcy act or the continuation
of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver or trustee to take
possession of the property or assets of the Company, the outstanding principal and all accrued interest on the 2012 Notes would
accelerate and automatically become immediately due and payable.
In connection
with the issuance of the 2012 Notes, we also issued warrants to each Investor. The warrants were exercisable for an aggregate
of 400,000 shares of common stock with an exercise price of fifteen cents ($0.15) per share for a period of five years. The relative
fair value of the warrants issued was $27,097, calculated using the Black-Scholes-Merton valuation model value of $0.07 with an
expected and contractual life of 5 years, an assumed volatility of 74.36%, and a risk-free interest rate of 0.77%. The warrants
were recorded as additional paid-in-capital and a discount on the 2012 Notes of $27,097.
The investors,
and the principal amount of their respective 2012 Notes and number of shares of common stock issuable upon exercise of their respective
warrants, are as set forth below:
|
Investor
|
|
Note Principal
|
|
|
Warrants
|
|
|
Sinaf S.A.
|
|
$
|
200,000
|
|
|
|
266,667
|
|
|
Joseph C. McNay
|
|
$
|
50,000
|
|
|
|
66,667
|
|
|
Allan L. Goldstein
|
|
$
|
35,000
|
|
|
|
46,666
|
|
|
J.J. Finkelstein
|
|
$
|
15,000
|
|
|
|
20,000
|
|
Sinaf S.
A. has historically been affiliated with our largest stockholder. The other investors are members of our Board of Directors including
Mr. Finkelstein who serves as our CEO and also the Chairman of our Board of Directors Dr. Goldstein who also serves as our
Chief Scientific Officer.
During
2014, the Company amended the existing October 2012 convertible debt agreement with the holders, solely to extend the due date
of the principal and accrued unpaid until interest October 19, 2017. No other terms of the original debt were amended or
modified, and the holders did not reduce the borrowed amount or change the interest rate of the debt. The Company considered
the restructuring a troubled debt restructuring as a result of the Company’s financial condition (see Note 1 discussion
of “going concern”). At the date of the amendment, all existing debt discounts and deferred financing fees were
fully amortized and the amendment did not involve any additional fees paid to the holders or third parties; as such there was
no gain recognized as a result of the amendment. The 2012 Notes matured, and the holders elected to convert the note balances
of $300,000 and accrued interest of approximately $76,000 into common stock and also exercised the associated warrants in October
2017.
2013
Convertible Notes
On March
29, 2013, we completed a private placement of convertible notes (the “March 2013 Notes”) raising an aggregate of $225,000
in gross proceeds. The March 2013 Notes bore interest at a rate of five percent (5%) per annum, matured sixty (60) months after
their date of issuance and were convertible into shares of our common stock at a conversion price of six cents ($0.06) per share
(subject to adjustment as described in the March 2013 Notes) at any time prior to repayment, at the election of the investors.
In the aggregate, the March 2013 Notes were initially convertible into up to 3,750,000 shares of our common stock.
At any
time prior to maturity of the March 2013 Notes, with the consent of the holders of a majority in interest of the March 2013 Notes,
we could prepay the outstanding principal amount of the March 2013 Notes plus unpaid accrued interest without penalty. Upon the
commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors,
the filing by or against the Company of a petition in bankruptcy or any petition for relief under the Federal bankruptcy act or
the continuation of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver
or trustee to take possession of the property or assets of the Company, the outstanding principal and all accrued interest on
the March 2013 Notes would accelerate and automatically become immediately due and payable.
The investors
in the offering included two members of the Board of Directors, Dr. Goldstein and Joseph C. McNay, an outside director. The principal
amounts of their respective March 2013 Notes are as set forth below:
|
Investor
|
|
Note Principal
|
|
|
Joseph C. McNay
|
|
$
|
50,000
|
|
|
Allan L. Goldstein
|
|
$
|
25,000
|
|
The Company
evaluated the terms of the March 2013 Notes which contained a down round provision under which the conversion price could be decreased
as a result of future equity offerings, as defined in the March 2013 Notes. The adjustment would reduce the conversion
price of the March 2013 Notes to be equivalent to that of the newly issued stock or stock-related instruments. As a
result, the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes and
should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period until
the related March 2013 Notes have been settled prior to the adoption of ASU 2017-11. The bifurcated liability of $225,000
was recorded on the date of issuance which resulted in a residual debt value of $0. The discount related to the embedded
feature was accreted as an addition to the debt through the maturity of the notes. The March 2013 Notes matured, and the holders
elected to convert the note balances of $225,000 and accrued interest of approximately $57,000 into common stock in March 2018.
On July
5, 2013, we completed a private placement of convertible notes (the “July 2013 Notes”) raising an aggregate of $100,000
in gross proceeds. The July 2013 Notes bore interest at a rate of five percent (5%) per annum, matured sixty (60) months after
their date of issuance and were convertible into shares of our common stock at a conversion price of six cents ($0.06) per share
(subject to adjustment as described in the July 2013 Notes) at any time prior to repayment, at the election of the investors.
In the aggregate, the July 2013 Notes were initially convertible into up to 1,666,667 shares of our common stock.
At any
time prior to maturity of the July 2013 Notes, with the consent of the holders of a majority in interest of the July 2013 Notes,
we could prepay the outstanding principal amount of the July 2013 Notes plus unpaid accrued interest without penalty. Upon the
commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors,
the filing by or against the Company of a petition in bankruptcy or any petition for relief under the Federal bankruptcy act or
the continuation of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver
or trustee to take possession of the property or assets of the Company, the outstanding principal and all accrued interest on
the July 2013 Notes would accelerate and automatically become immediately due and payable.
The investors
in the offering included three current and one former member of Board of Directors, Mr. Finkelstein, Dr. Goldstein, Mr. McNay
and L. Thompson Bowles, previously an outside director. The principal amounts of their respective July 2013 Notes are as set forth
below:
|
Investor
|
|
Note Principal
|
|
|
Joseph C. McNay
|
|
$
|
50,000
|
|
|
Allan L. Goldstein
|
|
$
|
10,000
|
|
|
J.J. Finkelstein
|
|
$
|
5,000
|
|
|
L. Thompson Bowles
|
|
$
|
5,000
|
|
The Company
evaluated the terms of the July 2013 Notes which contained a down round provision under which the conversion price could be decreased
as a result of future equity offerings, as defined in the July 2013 Notes. The adjustment would reduce the conversion
price of the July 2013 Notes to be equivalent to that of the newly issued stock or stock-related instruments. As a
result, the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes and
should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period until
the related July 2013 Notes have been settled prior to the adoption of ASU 2017-11. The bifurcated liability of $66,667 was recorded
on the date of issuance which resulted in a residual debt value of $33,333. The discount related to the embedded feature was accreted
back to debt through the maturity of the notes. The July 2013 Notes matured, and the holders elected to convert the note balances
of $100,000 and accrued interest of approximately $25,000 into common stock in July 2018.
On September
11, 2013, we completed a private placement of convertible notes raising an aggregate of $321,000 in gross proceeds (the “September
2013 Notes”). The September 2013 Notes bore interest at a rate of five percent (5%) per annum, matured sixty
(60) months after their date of issuance and were convertible into shares of our common stock at a conversion price of six cents
($0.06) per share (subject to adjustment as described in the September 2013 Notes) at any time prior to repayment, at the election
of the investor. In the aggregate, the September 2013 Notes were initially convertible into up to 5,350,000 shares
of our common stock.
At any
time prior to maturity of the September 2013 Notes, with the consent of the holders of a majority in interest of the September
2013 Notes, we could prepay the outstanding principal amount of the September 2013 Notes plus unpaid accrued interest without
penalty. Upon the commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment
for the benefit of creditors, the filing by or against the Company of a petition in bankruptcy or any petition for relief under
the federal bankruptcy act or the continuation of such petition without dismissal for a period of ninety (90) days or more, or
the appointment of a receiver or trustee to take possession of the property or assets of the Company, the outstanding principal
and all accrued interest on the September 2013 Notes would accelerate and automatically become immediately due and payable.
The investors
in the offering included an affiliate and three current and one former member of the Board of Directors. The principal amounts
of their respective September 2013 Notes are as set forth below:
|
Investor
|
|
Note Principal
|
|
|
SINAF S.A.
|
|
$
|
150,000
|
|
|
Joseph C. McNay
|
|
$
|
100,000
|
|
|
Allan L. Goldstein
|
|
$
|
11,000
|
|
|
L. Thompson Bowles
|
|
$
|
5,000
|
|
|
R. Don Elsey
|
|
$
|
5,000
|
|
The Company
evaluated the terms of the September 2013 Notes which contained a down round provision under which the conversion price could
be decreased as a result of future equity offerings, as defined in the September 2013 Notes. The adjustment would reduce
the conversion price of the September 2013 Notes to be equivalent to that of the newly issued stock or stock-related instruments. As
a result, the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes
and should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period
until the related September 2013 Notes have been settled prior to the adoption of ASU 2017-11. The bifurcated liability of $267,500
was recorded on the date of issuance which resulted in a residual debt value of $53,500. The discount related to the embedded
feature was accreted back to debt through the maturity of the notes. The September 2013 Notes matured, and the holders elected
to convert the note balances of $321,000 and accrued interest of approximately $81,000 into common stock in September 2018.
2014
Convertible Notes
On January
7, 2014, we completed a private placement of convertible notes raising an aggregate of $55,000 in gross proceeds (the “January
2014 Notes”). The January 2014 Notes bear interest at a rate of 5% per annum, mature sixty (60) months after
their date of issuance and are convertible into shares of our common stock at a conversion price of six cents ($0.06) per share
(subject to adjustment as described in the January 2014 Notes) at any time prior to repayment, at the election of the investor. In
the aggregate, the January 2014 Notes are initially convertible into up to 916,667 shares of our common stock.
At any
time prior to maturity of the January 2014 Notes, with the consent of the holders of a majority in interest of the January 2014
Notes, we may prepay the outstanding principal amount of the January 2014 Notes plus unpaid accrued interest without penalty. Upon
the commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of
creditors, the filing by or against the Company of a petition in bankruptcy or any petition for relief under the federal bankruptcy
act or the continuation of such petition without dismissal for a period of 90 days or more, or the appointment of a receiver or
trustee to take possession of the property or assets of the Company, the outstanding principal and all accrued interest on the
January 2014 Notes will accelerate and automatically become immediately due and payable.
The investors
in the offering included two current and one former member of the Board of Directors. The principal amounts of their respective
January 2014 Notes are as set forth below:
|
Investor
|
|
Note Principal
|
|
|
Joseph C. McNay
|
|
$
|
25,000
|
|
|
Allan L. Goldstein
|
|
$
|
10,000
|
|
|
L. Thompson Bowles
|
|
$
|
5,000
|
|
The Company
evaluated the terms of the January 2014 Notes which contain a down round provision under which the conversion price could be decreased
as a result of future equity offerings, as defined in the January 2014 Notes. The adjustment would reduce the conversion
price of the January 2014 Notes to be equivalent to that of the newly issued stock or stock-related instruments. As
a result, the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes
and should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period
until the related January 2014 Notes have been settled prior to the adoption of ASU 2017-11. The bifurcated liability of $55,000
was recorded on the date of issuance which resulted in a residual debt value of $0. The discount related to the embedded feature
is being accreted back to debt through the maturity of the notes. The January 2014 Notes matured, and the holders elected to convert
the note balances of $55,000 and accrued interest of approximately $14,000 into common stock in January 2019.
The outstanding
balance of the derivative liability is as follows:
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
March 2013 Notes
|
|
$
|
-
|
|
|
$
|
412,500
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2013 Notes
|
|
|
-
|
|
|
|
183,334
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2013 Notes
|
|
|
-
|
|
|
|
588,500
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2014 Notes
|
|
|
-
|
|
|
|
100,835
|
|
|
Total fair value of derivative liability
|
|
$
|
-
|
|
|
$
|
1,285,169
|
|
The change
in fair value of the derivative liability is as follows:
|
|
|
For the years ended
|
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
March 2013 Notes
|
|
$
|
-
|
|
|
$
|
(562,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
July 2013 Notes
|
|
|
-
|
|
|
|
(250,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
September 2013 Notes
|
|
|
-
|
|
|
|
(802,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
January 2014 Notes
|
|
|
-
|
|
|
|
(146,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
|
-
|
|
|
|
(190,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Rights liability
|
|
|
-
|
|
|
|
(48,937
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total change in fair value of derivative
|
|
$
|
-
|
|
|
$
|
(2,000,605
|
)
|
The Company
recorded interest expense and discount accretion as set forth below:
|
|
|
For the years ended
|
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
2012 Notes
|
|
$
|
-
|
|
|
$
|
12,999
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2013 Notes
|
|
|
14,192
|
|
|
|
56,250
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2013 Notes
|
|
|
9,677
|
|
|
|
18,335
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2013 Notes
|
|
|
49,661
|
|
|
|
69,550
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2014 Notes
|
|
|
13,750
|
|
|
|
13,749
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
87,280
|
|
|
$
|
170,883
|
|
Common
Stock.
In March, July and September of 2018, the March 2013, July 2013 and September 2013 Notes matured, and the holders elected
to convert the note balances and accrued interest into common stock. As a result, we issued 4,700,520, 2,089,120 and 6,706,076
shares of common stock, respectively. (see Note 7)
On March
2, 2018, we entered into the Reprice Agreement with Sabby Healthcare Master Fund, Ltd., and Sabby Volatility Warrant Master Fund,
Ltd. (collectively, “Sabby”). In connection with that certain securities purchase agreement between the Company and
Sabby dated June 27, 2016 (the “Purchase Agreement”) we also issued to Sabby warrants to purchase 5,147,059 shares
of common stock (the “Warrant Shares”) at an exercise price of $0.51 per share (the “Sabby Warrants”).
Under the terms of the Reprice Agreement, in consideration of Sabby exercising in full all of the Sabby Warrants (the “Warrant
Exercise”), the exercise price per share of the Sabby Warrants was reduced to $0.20 per share. In addition, and as further
consideration, we issued to Sabby warrants to purchase up to 3,860,294 shares of common stock at an exercise price of $0.2301
per share, the closing bid price for the Company’s Common Stock on February 28, 2018 (the “New Warrants”). We
received gross proceeds of approximately $1,029,000 from the warrant reprice transaction.
The Reprice
Agreement was accounted for as an inducement and consequently, we recognized a non-operating expense of $582,904 equal to the
fair value of the New Warrants calculated using a customized Monte Carlo simulation. The repricing of the Warrant Shares did not
result in any incremental fair value and consequently did not result in any additional expense.
In conjunction
with the Reprice Agreement we incurred $101,110 of expenses comprised of: (i) 102,947 warrants valued at $15,545 issued to an
outside third party as a fee for the transaction and (ii) $85,565 of expenses for professional fees. Such expenses were netted
against the proceeds from the transaction. The warrants contained the same terms and conditions as the New Warrants and were valued
using the Black-Scholes model.
Registration
Rights Agreements.
In connection with the sale of certain equity instruments, we have entered into Registration Rights Agreements.
Generally, these Agreements required us to file registration statements with the Securities and Exchange Commission to register
common shares to permit re-sale of common shares previously sold under an exemption from registration or to register common shares
that may be issued on exercise of outstanding warrants.
The Registration
Rights Agreements usually require us to pay penalties for any failure or time delay in filing or maintaining the effectiveness
of the required registration statements. These penalties are usually expressed as a fixed percentage, per month, of the original
amount we received on issuance of the common shares, options or warrants. While to date we have not incurred any penalties under
these agreements, if a penalty is determined to be probable we would recognize the amount as a contingent liability and not as
a derivative instrument.
Share-Based
Compensation.
We recognized $276,129 and $271,377 in stock-based compensation expense for the years ended December 31,
2018 and 2017, respectively. We expect to recognize the compensation cost related to non-vested options as of December 31,
2018 of $273,000 over the weighted average remaining recognition period of 1.23 years.
Stock
Option and Incentive Plans.
On June 13, 2018, at our Annual Meeting of Stockholders, our stockholders approved the 2018 Equity
Incentive Plan (the “2018 Plan”). The terms of the 2018 Plan provide for the discretionary grant of incentive stock
options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance
stock awards, other stock awards and performance cash awards to our employees, directors and consultants. The total number of
shares of our common stock reserved for issuance under the 2018 Plan is initially 5,000,000 shares of common stock with additional
shares being available for grant under the plan annually in an amount equal to 2% of the then outstanding shares of common stock
on July 1 of each calendar year.
We have
previously adopted two equity incentive plans, known as the 2000 Equity Incentive Plan, or the 2000 Plan, and the 2010 Equity
Incentive Plan, or the 2010 Plan. Both the 2000 Plan and the 2010 Plan have a term of ten years, with the 2000 Plan already expired
and the 2010 Plan scheduled to expire in July 2020. No further awards may be granted under the 2010 Plan with the approval
of the 2018 Plan. All outstanding option awards granted under the 2000 Plan and the 2010 Plan will continue to be subject to the
terms and conditions as set forth in the agreements evidencing such option awards and the terms of the 2000 Plan and the 2010
Plan. Shares remaining available for issuance under the shares reserve of the 2010 Plan will not be subject to future awards under
the 2018 Plan, and shares subject to outstanding awards under the 2000 Plan and the 2010 Plan that are terminated or forfeited
in the future will not be subject to future awards under the 2018 Plan.
The following
summarizes share-based compensation expense for the years ended December 31, 2018 and 2017, which was allocated as follows:
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
79,143
|
|
|
$
|
83,425
|
|
|
General and administrative
|
|
|
196,986
|
|
|
|
187,952
|
|
|
|
|
$
|
276,129
|
|
|
$
|
271,377
|
|
The following
summarizes stock option activity for the years ended December 31, 2018 and 2017:
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
Shares available for grants
|
|
|
Number of shares
|
|
|
Exercise price range
|
|
|
Weighted average exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
608,029
|
|
|
|
7,698,711
|
|
|
$
|
0.14 - 0.64
|
|
|
$
|
0.29
|
|
|
Grants
|
|
|
(1,000,000
|
)
|
|
|
1,000,000
|
|
|
|
0.28
|
|
|
|
0.28
|
|
|
Exercises
|
|
|
-
|
|
|
|
(95,608
|
)
|
|
|
0.16
|
|
|
|
0.16
|
|
|
Forfeitures
|
|
|
124,750
|
|
|
|
(167,915
|
)
|
|
|
0.21 - 0.64
|
|
|
|
0.40
|
|
|
Expirations*
|
|
|
376,400
|
|
|
|
(376,400
|
)
|
|
|
0.27
|
|
|
|
0.27
|
|
|
December 31, 2017
|
|
|
109,179
|
|
|
|
8,058,788
|
|
|
|
0.14 - 0.64
|
|
|
|
0.29
|
|
|
2018 Plan approved
|
|
|
5,000,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Grants
|
|
|
(1,605,000
|
)
|
|
|
1,605,000
|
|
|
|
0.21
|
|
|
|
0.21
|
|
|
Expirations
|
|
|
618,963
|
|
|
|
(618,963
|
)
|
|
|
0.16
- 0.22
|
|
|
|
0.19
|
|
|
December 31, 2018
|
|
|
4,123,142
|
|
|
|
9,044,825
|
|
|
$
|
0.14
- 0.64
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2018
|
|
|
|
|
|
|
8,955,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2018
|
|
|
|
|
|
|
7,039,825
|
|
|
|
|
|
|
|
|
|
The following
summarizes information about stock options outstanding at December 31, 2018:
|
|
|
Number of Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic Value
|
|
|
Options Outstanding, December 31, 2017
|
|
|
8,058,788
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,605,000
|
|
|
|
0.21
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(618,963
|
)
|
|
|
0.19
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding, December 31, 2018
|
|
|
9,044,825
|
|
|
$
|
0.28
|
|
|
|
4.3
years
|
|
|
$
|
20,000
|
|
|
Vested and unvested but expected to vest, December 31, 2018
|
|
|
8,955,810
|
|
|
$
|
0.28
|
|
|
|
4.3
years
|
|
|
$
|
20,000
|
|
|
Exercisable at December 31, 2018
|
|
|
7,039,825
|
|
|
$
|
0.28
|
|
|
|
3.1
years
|
|
|
$
|
20,000
|
|
Determining
the Fair Value of Options.
We use the Black-Scholes valuation model to estimate the fair value of options granted. Black-Scholes
considers a number of factors, including the market price and volatility of our common stock. We used the following forward-looking
range of assumptions to value each stock option granted to employees, directors and consultants during the years ended December 31,
2018 and 2017:
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
Risk-free rate of return
|
|
|
2.76
|
%
|
|
|
1.73
|
%
|
|
Expected life in years
|
|
|
5.88
|
|
|
|
5.88
|
|
|
Volatility
|
|
|
89
|
%
|
|
|
90
|
%
|
|
Forfeiture rate
|
|
|
2.6
|
%
|
|
|
2.6
|
%
|
Our dividend
yield assumption is based on the fact that we have never paid cash dividends and do not anticipate paying cash dividends in the
foreseeable future. Our risk-free interest rate assumption is based on yields of U.S. Treasury notes in effect at the date of
grant. Our expected life represents the period of time that options granted are expected to be outstanding and is calculated in
accordance with the Securities and Exchange Commission (“SEC”) guidance provided in the SEC’s Staff Accounting
Bulletin (“SAB”) 107 and SAB 110, using a “simplified” method. The Company has used the simplified method
and will continue to use the simplified method as it does not have sufficient historical exercise data to provide a reasonable
basis upon which to estimate an expected term. Our volatility assumption is based on reviews of the historical volatility of our
common stock. Using Black-Scholes and these factors, the weighted average fair value of stock options granted to employees and
directors was $0.16 and $0.21 for the years ended December 31, 2018 and 2017, respectively. We do not record tax-related
effects on stock-based compensation given our historical and anticipated operating experience and offsetting changes in our valuation
allowance which fully reserves against potential deferred tax assets.
The following
table summarizes our warrant activity for 2018 and 2017:
|
|
|
|
Warrants Outstanding
|
|
|
|
|
|
Number of
shares
|
|
|
Exercise price
range
|
|
|
Weighted
average
exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
5,804,412
|
|
|
$
|
0.15 - 0.51
|
|
|
$
|
0.48
|
|
|
Exercises
|
|
|
|
(400,000
|
)
|
|
|
0.15
|
|
|
|
0.15
|
|
|
December 31, 2017
|
|
|
|
5,404,412
|
|
|
|
0.37 - 0.51
|
|
|
|
0.50
|
|
|
Issuances
|
|
|
|
3,963,241
|
|
|
|
0.23
|
|
|
|
0.23
|
|
|
Exercises
|
|
|
|
(5,147,059
|
)
|
|
|
0.20
|
|
|
|
0.20
|
|
|
December 31, 2018
|
|
|
|
4,220,594
|
|
|
$
|
0.23
- 0.37
|
|
|
$
|
0.24
|
|
The Company’s
provision for income taxes consists of the following for the years ended December 31, 2018 and 2017:
|
|
|
2018
|
|
|
2017
|
|
|
Current income tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
Foreign
|
|
|
-
|
|
|
|
98,605
|
|
|
Total
|
|
|
-
|
|
|
|
98,605
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(344,794
|
)
|
|
|
4,816,966
|
|
|
State
|
|
|
(107,009
|
)
|
|
|
771,423
|
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
|
(451,803
|
)
|
|
|
5,588,389
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
451,803
|
|
|
|
(5,588,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
-
|
|
|
$
|
98,605
|
|
Significant
components of the Company’s deferred tax assets at December 31, 2018 and 2017 and related valuation allowances are
presented below:
|
|
|
Year ended December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
13,499,000
|
|
|
$
|
13,045,000
|
|
|
Research and experimentation credit carryforward
|
|
|
2,268,000
|
|
|
|
2,268,000
|
|
|
Charitable contribution carryforward
|
|
|
4,000
|
|
|
|
4,000
|
|
|
Accrued expenses, deferred revenue and other
|
|
|
632,000
|
|
|
|
538,000
|
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
(1,000
|
)
|
|
Share-based compensation
|
|
|
743,000
|
|
|
|
840,000
|
|
|
|
|
|
17,146,000
|
|
|
|
16,694,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Less - valuation allowance
|
|
|
(17,146,000
|
)
|
|
|
(16,694,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At December
31, 2018, we had net operating loss carryforwards for income tax purposes of approximately $49.1 million, which are available
to offset future federal and state taxable income, if any, and, research and experimental tax credit carryforwards of approximately
$2.3 million. Approximately $47.9 million of the net operating loss carryforward, generated prior to 2018, expires in increments
through 2037, while the carryforward generated in 2018 does not expire.
Section
382 of the Internal Revenue Code imposes substantial restrictions on the utilization of net operating losses and tax credits in
the event of a corporation’s ownership change. During 2009, the Company completed a preliminary study to compute any limits
on the net operating losses and credit carryforwards for purposes of Section 382. It was determined that the Company experienced
a cumulative change in ownership, as defined by the regulations, in 2002. This change in ownership triggers an annual limitation
on the Company’s ability to utilize certain U.S. federal and state net operating loss carryforwards and research tax credit
carryforwards, resulting in the potential loss of approximately $9.8 million of net operating loss carryforwards and $0.2 million
in research credit carryforwards. The Company has reduced the deferred tax assets associated with these carryforwards in its balance
sheets. The Company believes that the future use of net operating losses and tax credits presented above may be further reduced
as a result of additional ownership changes subsequent to 2009.
The provision
for income taxes on earnings subject to income taxes differs from the statutory federal rate for the years ended December 31,
2018 and 2017, due to the following:
|
|
|
2018
|
|
|
2017
|
|
|
US Federal statutory rate
|
|
|
21.00
|
%
|
|
|
34.00
|
%
|
|
State income tax, net of Federal benefit
|
|
|
6.52
|
%
|
|
|
5.45
|
%
|
|
Foreign tax
|
|
|
0.00
|
%
|
|
|
25.61
|
%
|
|
Change in fair value of derivative liabilities
|
|
|
0.00
|
%
|
|
|
-204.92
|
%
|
|
Share-based compensation
|
|
|
-2.64
|
%
|
|
|
13.56
|
%
|
|
Permanent differences and other
|
|
|
-9.30
|
%
|
|
|
16.61
|
%
|
|
Research and experimentation credits
|
|
|
0.01
|
%
|
|
|
-0.57
|
%
|
|
Foreign tax credits
|
|
|
0.00
|
%
|
|
|
-25.61
|
%
|
|
Changes in federal tax rate due to Tax Cuts and Jobs Act
|
|
|
0.00
|
%
|
|
|
1612.67
|
%
|
|
Change in valuation allowance
|
|
|
-22.66
|
%
|
|
|
-1451.18
|
%
|
|
Other
|
|
|
7.07
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00
|
%
|
|
|
25.62
|
%
|
The most
significant impact on our effective tax rate in 2017 was the revaluation of our deferred tax assets and liabilities at the lower
21% U.S. corporate tax rate, as proscribed by the Tax Cuts and Jobs Act, which was enacted on December 22, 2017 and lowered
the U.S. corporate tax rate from 35% to 21% beginning in 2018.
As discussed
in Note 2, we recognize the effect of income tax positions only if those positions more likely than not of being sustained. At
December 31, 2018 and 2017, we had no gross unrecognized tax benefits. We do not expect any significant changes in unrecognized
tax benefits over the next 12 months. In addition, we did not recognize any interest or penalties related to uncertain tax positions
at December 31, 2018 and 2017.
The 2008
through 2018 tax years generally remain subject to examination by federal and most state tax authorities. In addition, we would
remain open to examination for earlier years if we were to utilize net operating losses or tax credit carryforwards that originated
prior to 2012.
Lease
.
In February 2017, we amended our office lease agreement and the term was extended through July 2020. During the extended term
our rental payments will average approximately $4,000 per month.
The future
minimum rent payments as of December 31, are as follows:
|
2019
|
|
$
|
48,101
|
|
|
2020
|
|
|
28,850
|
|
|
Total
|
|
$
|
76,951
|
|
Employment
Continuity Agreements
. We have entered into employment contracts with our executive officers which provide for severance if
the executive is dismissed without cause or under certain circumstances after a change of control in our ownership. At December 31,
2018, these obligations, if triggered, could amount to a maximum of approximately $170,000.
Convertible
Debt Placement
On February
27, 2019 we sold a series of convertible promissory notes to management, the Company’s Board of Directors and accredited
investors including Essetifin S.p.A., our largest shareholder. The sale of the notes will result in gross proceeds to the Company
of $1,300,000 over two closings. The first closing in the amount of $650,000 occurred on February 27
th
and the second
closing, also in the amount of $650,000 will occur within three days of the Company providing notice of the enrolment of the first
patent in the ARISE-3 clinical trial in DES sponsored by ReGenTree. ReGenTree has informed us that they now expect the ARISE-3 clinical trial to occur in the second quarter of 2019. The notes contain
a $0.12 conversion price and the purchasers also received a warrant exercisable at $0.18 to purchase additional shares of common
stock equal to 75% of the number of shares into which each note is initially convertible. At present, with the receipt of the
sale proceeds from the first closing coupled with the anticipated proceeds from the second closing, we will have sufficient cash
to fund planned operations through the first quarter of 2020.
EXHIBIT INDEX
|
Exhibit No.
|
|
Description of Exhibit
|
|
Reference*
|
|
|
|
|
|
|
|
3.1
|
|
Restated
Certificate of Incorporation
|
|
Exhibit 3.1
to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
|
|
|
|
|
|
|
|
3.2
|
|
Certificate
of Amendment to Restated Certificate of Incorporation
|
|
Exhibit 3.2
to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
|
|
|
|
|
|
|
|
3.3
|
|
Certificate
of Amendment to Restated Certificate of Incorporation
|
|
Exhibit 3.3
to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
|
|
|
|
|
|
|
|
3.4
|
|
Certificate
of Amendment of Restated Certificate of Incorporation
|
|
Exhibit
3.4 to Registration Statement on Form S-8 (File No. 333-168252) (filed July 21, 2010)
|
|
|
|
|
|
|
|
3.5
|
|
Certificate
of Designation of Series A Participating Cumulative Preferred Stock
|
|
Exhibit 3.4
to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
|
|
|
|
|
|
|
|
3.6
|
|
Amended
and Restated Bylaws
|
|
Exhibit 3.4
to Quarterly Report on Form 10-Q (File No. 001-15070) for the quarter ended June 30, 2006 (filed August 14, 2006)
|
|
|
|
|
|
|
|
3.7
|
|
Amendment
to Amended and Restated Bylaws
|
|
Exhibit 3.6
to Registration Statement on Form S-8 (File No. 333-152250) (filed July 10, 2008)
|
|
|
|
|
|
|
|
4.1
|
|
Specimen
Common Stock Certificate
|
|
Exhibit 4.1
to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
|
|
|
|
|
|
|
|
4.2
|
|
Specimen
Rights Certificate
|
|
Exhibit 4.2
to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
|
|
|
|
|
|
|
|
4.3
|
|
Rights
Agreement, dated April 29, 1994, between the Company and American Stock Transfer & Trust Company, as Rights Agent
|
|
Exhibit 4.3
to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
|
|
|
|
|
|
|
|
4.4
|
|
Amendment
No. 1 to Rights Agreement, dated March 4, 2004, between the Company and American Stock Transfer & Trust Company,
as Rights Agent
|
|
Exhibit 4.4
to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
|
|
|
|
|
|
|
|
4.5
|
|
Warrant
Agreement, dated May 21, 2010, between the Company and American Stock Transfer & Trust Company, as Warrant Agent
|
|
Exhibit
4.1 to Current Report on Form 8-K (File No. 001-15070) (filed May 21, 2010)
|
|
|
|
|
|
|
|
4.6
|
|
Form
of Warrant Certificate
|
|
Exhibit
4.6 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-166146) (filed May 17, 2010)
|
|
|
|
|
|
|
|
10.1
^
|
|
Amended
and Restated 2000 Stock Option and Incentive Plan, as amended
|
|
Annex
A to the Company’s Proxy Statement on Schedule 14A (File No. 001-15070) (filed May 9, 2008)
|
|
10.2
^
|
|
2010
Equity Incentive Plan
|
|
Exhibit
10.1 to Current Report on Form 8-K (File No. 001-15070) (filed July 20, 2010)
|
|
|
|
|
|
|
|
10.3
|
|
Form
of Stock Option Grant Notice and Stock Option Agreement under the 2010 Equity Incentive Plan
|
|
Exhibit
10.2 to Current Report on Form 8-K (File No. 001-15070) (filed July 20, 2010)
|
|
|
|
|
|
|
|
10.4
|
|
Patent
License Agreement — Exclusive, dated January 24, 2001, between the Company and the U.S. Public Health Service
|
|
Exhibit B
to Exhibit 10.1 to Amendment No. 1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (File No.
001-15070) (filed January 16, 2013)
|
|
|
|
|
|
|
|
10.5
|
|
Thymosin
Beta 4 License and Supply Agreement, dated January 21, 2004, between the Company and Defiante Farmaceutica S.A.
|
|
Exhibit 10.10
to Registration Statement on Form SB-2 (File No. 333-113417) (filed March 9, 2004)**
|
|
|
|
|
|
|
|
10.6
|
|
Lease,
by and between the Company and The Realty Associates Fund V, L.P., dated December 10, 2009
|
|
Exhibit
10.25 to Annual Report on Form 10-K for the year ended December 31, 2009 (File No. 001-15070) (filed March 31, 2010)
|
|
|
|
|
|
|
|
10.7
|
|
Form
of Warrant to Purchase Common Stock dated April 30, 2009
|
|
Exhibit 10.1
to Current Report on Form 8-K (File No. 001-15070) (filed April 16, 2009)
|
|
|
|
|
|
|
|
10.8
|
|
Form
of Common Stock Purchase Warrant, dated October 5, 2009
|
|
Exhibit 4.1
to Current Report on Form 8-K (File No. 001-15070) (filed September 30, 2009)
|
|
|
|
|
|
|
|
10.9
|
|
Form
of Warrant, dated October 15, 2009
|
|
Exhibit 4.1
to Current Report on Form 8-K (File No. 001-15070) (filed October 5, 2009)
|
|
|
|
|
|
|
|
10.10
|
|
Representative’s
Warrant to Purchase Common Stock, dated May 21, 2010
|
|
Exhibit
4.3 to Current Report on Form 8-K (File No. 001-15070) (filed May 21, 2010)
|
|
|
|
|
|
|
|
10.11
|
|
Registration
Rights Agreement, dated January 4, 2011
|
|
Exhibit
10.3 to Current Report on Form 8-K (File No. 001-15070) (filed January 7, 2011)
|
|
|
|
|
|
|
|
10.12
|
|
Warrant
to Purchase Common Stock, dated January 7, 2011, issued to Lincoln Park Capital
|
|
Exhibit
4.1 to Current Report on Form 8-K (File No. 001-15070) (filed January 7, 2011)
|
|
|
|
|
|
|
|
10.13
|
|
Form
of Warrant to Purchase Common Stock, dated January 7, 2011, issued to the Sigma-Tau Purchasers
|
|
Exhibit
4.2 to Current Report on Form 8-K (File No. 001-15070) (filed January 7, 2011)
|
|
|
|
|
|
|
|
10.14
^
|
|
Amended
and Restated Change in Control Agreement between the Company and J.J. Finkelstein, dated July 2, 2012
|
|
Exhibit
10.8 to Current Report on Form 10-Q (File No. 001-15070) (filed August 14, 2012)
|
|
|
|
|
|
|
|
10.15
^
|
|
Amended
and Restated Change in Control Agreement between the Company and Allan L. Goldstein, dated July 2, 2012
|
|
Exhibit
10.12 to Current Report on Form 10-Q (File No. 001-15070) (filed August 14, 2012)
|
|
|
|
|
|
|
|
10.16
|
|
Form
of Convertible Promissory Note
|
|
Exhibit
4.1 to Current Report on Form 8-K (File No. 001-15070) (filed October 24, 2012)
|
|
|
|
|
|
|
|
10.17
|
|
Form
of Warrant
|
|
Exhibit
4.2 to Current Report on Form 8-K (File No. 001-15070) (filed October 24, 2012)
|
|
|
|
|
|
|
|
10.18
|
|
Convertible
Note and Warrant Purchase Agreement
|
|
Exhibit
10.1 to Current Report on Form 8-K (File No. 001-15070) (filed October 24, 2012)
|
|
10.19
|
|
License
Agreement with Lee’s Pharmaceutical (HK) Limited
|
|
Exhibit
10.1 to Amendment No. 1 to Form 10-Q (File No. 001-15070) for the quarter ended September 30, 2012 (filed January 16, 2013)**
|
|
|
|
|
|
|
|
10.20
|
|
Form
of Convertible Promissory Note
|
|
Exhibit
4.1 to Current Report on Form 8-K (File No. 001-15070) (filed April 2, 2013)
|
|
|
|
|
|
|
|
10.21
|
|
Convertible
Note Purchase Agreement
|
|
Exhibit
10.1 to Current Report on Form 8-K (File No. 001-15070) (filed April 2, 2013)
|
|
|
|
|
|
|
|
10.22
|
|
Form
of Convertible Promissory Note
|
|
Exhibit
4.1 to Current Report on Form 8-K (File No. 001-15070) (filed July 11, 2013)
|
|
|
|
|
|
|
|
10.23
|
|
Convertible
Note Purchase Agreement
|
|
Exhibit
10.1 to Current Report on Form 8-K (File No. 001-15070) (filed July 11, 2013)
|
|
|
|
|
|
|
|
10.24
^
|
|
Letter
Agreement between the Company and J.J. Finkelstein, dated July 5, 2013
|
|
Exhibit
10.2 to Current Report on Form 8-K (File No. 001-15070) (filed July 11, 2013)
|
|
|
|
|
|
|
|
10.25
^
|
|
Letter
Agreement between the Company and Allan L. Goldstein, dated July 5, 2013
|
|
Exhibit
10.4 to Current Report on Form 8-K (File No. 001-15070) (filed July 11, 2013)
|
|
|
|
|
|
|
|
10.26
|
|
Form
of Convertible Promissory Note
|
|
Exhibit
4.1 to Current Report on Form 8-K (File No. 001-15070) (filed September 19, 2013)
|
|
|
|
|
|
|
|
10.27
|
|
Convertible
Note Purchase Agreement
|
|
Exhibit
10.1 to Current Report on Form 8-K (File No. 001-15070) (filed September 19, 2013)
|
|
|
|
|
|
|
|
10.28
|
|
Form
of Convertible Promissory Note
|
|
Exhibit
4.1 to Current Report on Form 8-K (File No. 001-15070) (filed January 9, 2014)
|
|
|
|
|
|
|
|
10.29
|
|
Convertible
Note Purchase Agreement
|
|
Exhibit
10.1 to Current Report on Form 8-K (File No. 001-15070) (filed January 9, 2014)
|
|
|
|
|
|
|
|
10.30
^
|
|
Letter
Agreement between the Company and J.J. Finkelstein, dated January 7, 2014
|
|
Exhibit
10.2 to Current Report on Form 8-K (File No. 001-15070) (filed January 9, 2014)
|
|
|
|
|
|
|
|
10.31
|
|
Letter
Agreement between the Company and Allan L. Goldstein, dated January 7, 2014
|
|
Exhibit
10.3 to Quarterly Report on Form10-Q (File No. 001-15070) (filed January 9, 2014)
|
|
|
|
|
|
|
|
10.32
|
|
Securities
Purchase Agreement
|
|
Exhibit
10.5 to Quarterly Report on Form10-Q (File No. 001-15070) (filed May 15, 2014)
|
|
|
|
|
|
|
|
10.33
|
|
License
Agreement RGN-259 dated March 7, 2014 with GtreeBNT (formerly Digital Aria)
|
|
Exhibit
10.6 to Quarterly Report on Form10-Q (File No. 001-15070) (filed May 15, 2014)**
|
|
|
|
|
|
|
|
10.34
|
|
License
Agreement RGN-137 dated March 7, 2014 with GtreeBNT (formerly Digital Aria)
|
|
Exhibit
10.7 to Quarterly Report on Form10-Q (File No. 001-15070) (filed May 15, 2014)**
|
|
|
|
|
|
|
|
10.35
^
|
|
Executive
Employment Agreement between the Company and J.J. Finkelstein dated April 16, 2014
|
|
Exhibit
10.1 to Quarterly Report on Form10-Q (File No. 001-15070) (filed August 14, 2014)
|
|
|
|
|
|
|
|
10.36
^
|
|
Executive
Employment Agreement between the Company and Allan L. Goldstein dated April 16, 2014
|
|
Exhibit
10.2 to Quarterly Report on Form10-Q (File No. 001-15070) (filed August 14, 2014)
|
|
|
|
|
|
|
|
10.37
^
|
|
Executive
Employment Agreement between the Company and Dane Saglio dated April 16, 2014
|
|
Exhibit
10.3 to Quarterly Report on Form10-Q (File No. 001-15070) (filed August 14, 2014)
|
|
10.38
|
|
Form
of First Amendment to Promissory Note dated October 3, 2014
|
|
Exhibit
10.1 to Current Report on Form 8-K (File No. 001-15070) (filed October 9, 2014)
|
|
|
|
|
|
|
|
10.39
|
|
Joint
Venture Agreement between the Company and GtreeBNT Co., Ltd. dated January 28, 2015
|
|
Exhibit
10.1 to Quarterly Report on Form 10-Q (File No. 001-15070) (filed May 15, 2015)
|
|
|
|
|
|
|
|
10.40
|
|
License
Agreement between the Company and ReGenTree, LLC dated January 28, 2015
|
|
Exhibit
10.2 to Quarterly Report on Form 10-Q (File No. 001-15070) (filed May 15, 2015)
|
|
|
|
|
|
|
|
10.41
|
|
2014
Amendment to Lease Agreement
|
|
Exhibit
10.41 to Annual Report on Form 10-K (File No. 001-15070) (filed April 11, 2016)
|
|
|
|
|
|
|
|
10.42
|
|
Securities
Purchase Agreement between the Company and Purchasers identified therein dated June 27, 2016.
|
|
Exhibit
10.1 to Current Report on Form 8-K (File No. 001-15070) (filed July 1, 2016).
|
|
|
|
|
|
|
|
10.43
|
|
Registration
Rights Agreement between the Company and Purchasers identified therein dated June 27, 2016.
|
|
Exhibit
10.2 to Current Report on Form 8-K (File No. 001-15070) (filed July 1, 2016).
|
|
|
|
|
|
|
|
10.44
|
|
Amendment
No. 2 to the RGN-259 License Agreement between the Company and ReGenTree, LLC dated April 28, 2016.
|
|
Exhibit
10.1 to Quarterly Report on Form 10-Q (File No. 001-15070) (filed August 22, 2016)
|
|
|
|
|
|
|
|
10.45
|
|
Amendment
No. 2. to Joint Venture Agreement between the Company and GtreeBNT Co., Ltd. dated May 11, 2016.
|
|
Exhibit
10.2 to Quarterly Report on Form 10-Q (File No. 001-15070) (filed August 22, 2016)
|
|
|
|
|
|
|
|
10.46
|
|
Amendment
No 2. Dated as of August 28, 2017, REN-137 License Agreement between the Company and GTreeBNT Co., LTD, dated March 7, 2014
|
|
Exhibit
10.1 to Quarterly Report on Form 10-Q (File No. 001-15070) (filed November 14, 2017)**
|
|
10.47
|
|
Warrant Reprice Agreement between the Company and the Purchasers identified therein dated March 2, 2018
|
|
Exhibit
10.47
to Annual Report on Form 10-K (File
No. 001-15070) (filed March 29, 2018)
|
|
|
|
|
|
|
|
10.48
|
|
Form of Common Stock Warrant
|
|
Exhibit
10.48
to Annual Report on Form 10-K (File
No. 001-15070) (filed March 29, 2018)
|
|
|
|
|
|
|
|
10.49
|
|
2018
Equity Incentive Plan
|
|
Filed
herewith
|
|
|
|
|
|
|
|
23.1
|
|
Consent
of CohnReznick LLP
|
|
Filed herewith
|
|
|
|
|
|
|
|
24.1
|
|
Powers of Attorney
|
|
Included on signature page
|
|
|
|
|
|
|
|
31.1
|
|
Certification
of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities
Exchange Act of 1934
|
|
Filed herewith
|
|
|
|
|
|
|
|
32.1
|
|
Certification
of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
Filed herewith***
|
|
101
|
|
The
following materials from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018, formatted
in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets at December 31, 2018 and 2017; (ii) Statements of Operations
for the years ended December 31, 2018 and 2017; (iii) Statements of Changes in Stockholders’ Deficit; (iv) Statements
of Cash Flows for the years ended December 31, 2018 and 2017; and (v) Notes to Financial Statements.
|
|
Filed
herewith
|
|
|
*
|
Except where noted, the exhibits referred to in this column have heretofore
been filed with the Securities and Exchange Commission as exhibits to the documents indicated and are hereby incorporated
by reference thereto. The Registration Statements referred to are Registration Statements of the Company.
|
|
|
|
|
|
|
**
|
The registrant has been granted confidential treatment with respect
to certain portions of this exhibit (indicated by asterisks), which have been filed separately with the Securities and Exchange
Commission.
|
|
|
|
|
|
|
***
|
This certification is being furnished solely to accompany this annual
report pursuant to 18 U.S.C. Section 1350, is not being filed for purposes of Section 18 of the Securities Exchange
Act of 1934 and is not to be incorporated by reference into any filing of the registrant, whether made before or after the
date hereof, regardless of any general incorporation language in such filing.
|
|
|
|
|
|
|
^
|
Compensatory plan, contract or arrangement.
|
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